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Realty Check

How DC mess could curb commercial real estate

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In major cities across America, commercial real estate is seeing a rebirth. After crashing hard during the recent recession, sales and development are soaring again, and financing is finally following through.

"There is a lot of momentum in commercial real estate," said Sam Chandan of Chandan Economics. "The banks are re-engaged. In the second quarter of this year, we saw a net increase in lending on construction projects for the first time since the financial crisis."

Commercial property sales volume is on track to surpass $300 billion this year. That is an increase of 380 percent from the low in 2009, according to Chandan. Sales spiked in the final quarter of 2012 on speculation of higher tax rates. Imagine what would happen in the reverse if a debt default caused a spike in interest rates.

"Commercial real estate is very interest rate sensitive and credit dependent and long term. Those are not good formulas if you have a high interest rate environment or an environment in which credit is volatile," said Stephen Renna president of the Commercial Real Estate Finance Council.

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