Commercial real estate outlook bleak


LAKE BUENA VISTA, Fla. -- Commercial mortgage bankers and life insurance company officials agreed on at least one thing at the Mortgage Bankers Association meeting here last week: The commercial real estate business is in bad shape and getting worse.

That view has obvious implications for construction companies, developers and mortgage bankers.

But the real estate "disaster," as it is being called here, also has brought closer scrutiny to another industry sector -- life insurance companies that hold billions of dollars in assets in commercial mortgages and in equity interests in commercial real estate ventures.

Overbuilding, recession and the prospect of only a mild recovery have contributed to the bleak outlook, said economists and bankers.

"A decrease in lease and building values plus a tightening of credit have put the industry in a bind we haven't seen since the Great Depression," said John O'Meara, president of the National Association of Industrial and Office Parks.

U.S. life insurance companies typically hold 25 percent of their investment portfolios in commercial real estate. As foreclosure rates rise, rating agencies, such as Duff & Phelps and Moody's, are taking a closer look at the quality and type of mortgages the insurance companies are backing.

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