More commercial real estate troubles

This article was originally on a blog post platform and may be missing photos, graphics or links. See About archive blog posts.

Los Angeles commercial real estate continues to spiral downward, according to a report released Wednesday by Real Capital Analytics Inc.

The New York-based real estate research firm found that Los Angeles had $4.5 billion in troubled commercial properties at the end of June. In all, RCA reported there were 263 properties in default, foreclosure or bankruptcy. At the beginning of the year there were 113 -- a 133% spike.

Don Walker, senior vice president of Irvine-based John Burns Real Estate Consulting, said the large numbers aren’t very surprising. He points to the skyrocketing unemployment rate, which now stands at 11.5%, and consumers’ current tendency to cut back on discretionary spending, as contributing factors for the downturn in the market.

Walker said the worst may be to come, because commercial real estate numbers traditionally lag behind residential.

‘We might be in the early stages of decline,’ he said. ‘I don’t expect a turnaround until consumers regain confidence and the jobless numbers stop mounting.’

But things could be worse, said Dan Fasulo, RCA managing director. Compared to the national picture, Los Angeles is faring well.

‘Los Angeles has held up better than its peers,’ Fasulo said. ‘For example, you couldn’t give away a commercial property in the Midwest right now.’

Nationally, RCA found 5,315 troubled commercial properties valued at more than $108 billion.

The report lists hotels and retail properties as the most ‘problematic sectors’ and notes the bankruptcy filings by mall owner General Growth Properties Inc. and hotel chain Extended Stay America Inc.

The report said the lack of available credit is causing property to fall into default across the country and among every investor type.

‘Excess leverage is endemic to every type of investor, all of which are facing difficulties refinancing mortgages as they come due,’ the study said.

The figures released Wednesday are preliminary, the report said.

-- W.J. Hennigan