A lot of folks in the Las Vegas Valley have been talking about when the commercial real estate sector is going to see more foreclosures and transactions. We've seen retail, office and industrial vacancies increase fairly steadily for the past couple of years and have heard the chatter about when the real skaking out will occur. There are a lot of investors that have just been waiting to pounce on some of these workout deals so we will continue to track the commercial market closely. While we've had clients become very comfortable with a lot of the housing valuations, commercial properties are still moving in that direction.

Torto Wheaton research has a nice article on how deleveraging, or the winding down of debt, will effect commercial real estate prices. Employing the NCREIF capitilazation rates, TWR performs an econometric analysis and basing expectations on a constant debt/GDP ratio at Q4 1994 levels, they are able to estimate the effects of deleveraging by looking at how things would have been at these constant values. Nationally, office properties would have been 42% lower than actual, industrial properties would have been 35% lower, multifamily portfolios 30% lower and retail 26% lower (Chervachidze, April 2009). This gives us a perspective of the magnitude of potential declines. The TWR numbers are national, however in Las Vegas, we will have to see substantial adjustments in prices before we really see a significant volume of transactions in the sector.

While home sales volumes are up significantly year-over-year, 2009 might be what 2007-08 was for housing. That means that dealmakers, who are doing a lot of homework now, will be able to do some real business as this deleveraging occurs. For tenants, its been and will continue to be a good time to negotiate.

The TRW study can be found at www.twr.com. The paper is titled, Hit by the Shockwave: The Credit Bubble Burst and Deleveraging's effect on CRE Prices.