IT WASN’T SUPPOSED to be like this. Commercial real estate was expected to follow residential real estate into the gutter. Over-aggressive lending terms, a decline in liquidity, rising unemployment, declining rents – it was the perfect storm for a commercial real estate collapse. Even as far into the US recession as a year ago, Elizabeth Warren’s Congressional Oversight Panel warned of the impending crisis. In a report in February 2010, the panel cautioned: "There is a commercial real estate crisis on the horizon, and there are no easy solutions to the risks commercial real estate may pose to the financial system and the public."
Yet in the fourth quarter of 2010, the amount of outstanding distressed commercial real estate loans fell for the first time since 2007. The amount of loans entering distress, and an increase in workouts through asset sales or loan modifications and extensions led to a $10.5 billion decline in the outstanding amount. According to the MIT Center for Real Estate’s commercial real estate data index, there was a 12% increase in prices of US commercial real estate sold in the final quarter of 2010 – the second-largest quarterly price rise in the history of the index.
