Hat tip to the rock band Chicago for this morning’s title!  Interesting piece in the Tennessean this morning titled “Commercial Real Estate Unlikely to Recover Soon.”  It’s a short Q & A that hits a couple of “ya think?!” items that are being overlooked in the crowd that is wandering through the fields of “green shutes.”  First, credit is still frozen solid.  Unless you bring a very powerful balance sheet and a lot of liquidity to the table you are not going to get a loan, you are not going to get re-financed.  The second “ya think?!” point is this: vacancy is bad!  Unemployment means fewer people sitting in office cubicles.  It means fewer trips to the strip mall.  It means one bedroom renters doubling up…these ripple effects are still working their way into the system.  The article cites:

Marcus & Millichap Real Estate Investment Services projects U.S. vacancy rates this year will hit 17.6 percent for office space, 11 percent for retail, 12.6 percent for industrial and 8.2 percent for apartments. Two years ago, the vacancy rate was 12.6 percent for office space, 7.2 percent for retail, 9.4 percent for industrial and 5.7 percent for apartments.

All that vacancy translates into fewer rental dollars coming into the owners’ pockets.  In that environment only the very strong survive.  We may be bottoming out on the single-family side with home sales showing modest improvements in June.  This movement upward in velocity is due more to rational pricing than easier lending or optimism about the future.  We started with Chicago, I end with Frost: “and miles to go before I sleep.”

Quick update – just saw this from The Capital Markets Update over at Urban Land:

Real estate capital markets remain in poor condition. CMBS issuance finally moved off the zero mark, with a miniscule $0.6 billion of CMBS issuance activity in June, according to Commercial Mortgage Alert, after 11 straight months of nothing at all. CMBS delinquency rates, according to Trepp, LLC, rose from 2.77 percent in May to 4.07 percent in June, although Trepp reports this is strongly affected by General Growth Properties’ 30-day delinquencies. Trepp estimates that, excluding GGP, delinquency rates are in the mid-3 percent range, still continuing the steep increase that has occurred over the past several months and that is expected to continue.

The REIT sector showed a -3.7 percent return for June, following three months of positive returns; total returns for the past year are -43.3 percent. The NCREIF Property Index turned in a dismal first quarter (second-quarter numbers are due out toward the end of July), with total returns of -7.3 percent, primarily due to rapid depreciation.

The midpoint of commercial mortgage rate spreads over ten-year Treasuries, tracked by Cushman Wakefield Sonnenblick Goldman, remains relatively high as of the end of June, and unchanged since May.

Property sales volumes were down again in May, according to Real Capital Analytics; the sales volume stood at $2.3 billion in May as compared to $2.4 billion in April, both well below the $9.7 billion in May 2008. Capitalization ratesremained largely unchanged in May; overall cap rates stood at 7.15 percent in May, up from 6.76 percent for the same month a year ago. Cap rates remain below the historic norm of 7.62 percent since 2001, but are expected to rise in the foreseeable future.