Here is a story that, unfortunately, keeps repeating itself time and time again. It’s also a story that speaks volumes about where the commercial real estate market truly is today and the challenges that developers and bankers face. 

The only three  questions that remain are: (1) How low will prices go down?; (2)When will the tide turn?; and (3) Most importantly, what are developers and bankers to do?

CASE STUDY: The Enclave in Silver Spring, MD just  saw a first time appraisal reduction in July 2010 that dropped the estimated value of the property to $114 million.

This follows a $150 million loan on the appraised value of the property of $284 million in February 2007. That’s a 60% reduction in value, and that’s on top of an impressive $65 million renovation of the 1,119-unit apartment complex, completed in October 2008.

THE MARKET: There were a total of 241 first time appraisal reductions in July 2010, including 23 loans that had a balance greater than $30 million.

UNDERWATER: The Enclave, with a balance of $150 million, saw its appraisal drop $36 million below the money owed on its outstanding loan. Coincidentally, $150 million is the same amount Stellar Management paid for the property in 2003.  

Tags: commercial real estate, Underwater

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