Is subprime affecting commercial real estate?

When people I meet find out that I work in the field of commercial real estate, they often ask me how the subprime mortgage issues have affected me and my business.  At first, I would simply say, “Oh, it doesn’t really impact my side of the industry.  I represent office tenants and they’re not really impacted by residential foreclosures.”  As I did my research, I changed my tune to, “Well, with financing being more difficult across the board, owners of newly acquired buildings have to start asking for greater rent to manage their debt coverage or just say no to buying that building they’ve had their eyes on.”

Today, I’m well aware that the subprime fiasco has had a major impact directly on commercial real estate.  As our hometown paper covers the situation in this article – Empty Office Leave Landlords High and Dry – it becomes clear that commercial landlords and tenants will begin to see bigger impacts.  Providers of subprime mortgages are scaling back their office space needs or even disappearing, leaving landlords with higher vacancy than they could have forecast.  Even tenants are being hit with extra burdens, as the situation with Zurich NA shows.  Lenders are beginning to return to a more reasonable level of generosity, demanding to see greater credentials for both the investors and sometimes even the tenants who would be leasing space.

After seeing the Chicago Tribune article, I did a bit more digging.  The only article I found focusing specifically on the subprime impact on commercial real estate comes from The Plain Dealer, official paper of the Mistake by the Lake (aka Cleveland).  This article emphasizes the impact on investors and developers, but it’s interesting to note that a quick internet search on “subprime commercial real estate” only came up with a couple of legitimate articles.  Perhaps it’s not such a big deal after all or, more likely, we haven’t seen the worst of the impact yet.