Deleveraging the Commercial Real Estate Market

Deleveraging will have a profound impact on commercial real estate. Less lending by banks will serve to slow economic growth.

The end of an era

In the midst of the most severe economic downturn in decades, it is far too soon to know how the overhaul of the banking system will play out. But whatever else happens, it is clear that the financing of real estate has undergone a long-term shift. The era of high leverage is over, and it will be replaced with a conservative market environment for the foreseeable future. Less debt means more equity, which will lead to falling property prices and perhaps the revival of REITs. This shift has implications that market participants must heed in order to survive and thrive over the short and long term.