Commercial real estate taking a hit

reported by: Shawn Patrick

3 months ago

DENVER - Economists warn the next big foreclosure crisis could come in commercial real estate. Businesses are either failing or moving out of their office space, leaving empty space behind.

"This bubble is already bursting. It's not a question of if, it's a question of how severe it's going to be," John Rebchook, editor of editor of insiderealestatenews.com said.

In Denver, the commercial vacancy rate climbed to just more than 19 percent. It was about 15 percent a year ago, according to commercial real estate brokerage firm The Frederick Ross Company.

That's the highest increase since 2002.

Gil Gonzales sees a small part of the struggling industry outside his pet grooming store in a Jefferson County shopping plaza. He fears becoming the next statistic, a small business wiped out by the credit crunch, leaving an empty store behind.

Gonzales is now four months behind on his lease.

"One hundred percent of what I'm bringing in right now goes toward all of my bills, my lease, utilities," Gonzales said.

He sees several stores around him sitting empty.

"It's a domino effect. If somebody closes down, it affects all the businesses in this shopping center," Gonzales said.

Businesses have less revenue, can't make the rent, and can't get new loans because fewer banks are lending.

Meanwhile, the commercial real estate industry has taken a downward spiral.

John Rebchook covered the real estate industry in Denver for 30 years and is now the editor of insiderealestatenews.com.

"This bubble is already bursting. It's not a question of if, it's a question of how severe it's going to be," Rebchook said.

Rebchook points to the foreclosure crisis in the Denver area for comparison.

"You remember all those nasty sub-prime mortgages in residential? Well, something similar happened on the commercial side. Money was real easy, people built too much, they paid too much for buildings. Now those loans are coming due, and people aren't going to be able to refinance," Rebchook said.

It could mean more trouble for an already struggling banking industry. It's a vicious cycle, leaving small business owners right in the middle.

"I'm just hanging on by the skin of my teeth basically," Gonzales said.

For more information, visit www.insiderealestatenews.com.