Paul Habibi is a lecturer at UCLA’s Ziman Center For Real Estate as well as principal and co-founder of Habibi Properties LLC, one of the largest private apartment owners in the Los Angeles area. We asked him to share his insights about what’s happening with the commercial real estate loan crisis …

Us: What’s the status of the commercial mortgage crisis? Are things getting better?

Paul: There are roughly $1.4 trillion of loans coming due by 2014, nearly half of which are currently under water. I’d estimate that when all the dust settles, $100-$150 billion will go back to lenders or get sold at a loss. I’m certainly on the bullish side, but the reality is that low interest rates and improving fundamentals have averted the commercial real estate crisis that many thought was imminent.

Us: Will lenders be nicer to commercial borrowers than to homeowners in working out loan modifications, extensions, etc?

Paul: Thus far, the success rate for workouts in the commercial sector far exceeds that of the residential sector. However, there isn’t nearly as much political pressure to help out commercial borrowers. As much as it is criticized as a non-strategy, extend and pretend worked. It bought borrowers time for the market to correct and for banks to avoid the costs and ripple effect of massive defaults.

Us: Are we past the peak? How much longer until the commercial real estate market is back on its feet?

Paul: With fundamentals on the upswing, we are well past the peak of distress. While the popular rhetoric will have you believe the recovery is sluggish, economic output today is ahead of pre-recession levels and corporate profits are very healthy. As it pertains to real estate, just the realm of real estate, concerns about the unemployment rate are overblown – it’s absolute job growth (size of the pie) that fills buildings and increases rents.

Us: How do commercial defaults in Orange County compare to the national market?

Paul: In Orange County, there is currently $2.3 billion of distressed across 142 properties, and nationally there is $170 billion across 12,243 properties.

While Orange Country commercial real estate experienced a tough time in the aftermath of the housing bubble, it is also healing fast. In the past year, looking at changes in commercial occupancy across the top 20 national markets, Orange County placed second only behind the San Francisco Bay Area.

Us: What’s the approximate value of commercial real estate defaults since the market crash in 2008?

Paul: Since 2008, we have seen over $340 billion worth of distress hit the market. Most of these loans are in various stages of default, but the resolution of each specific situation is what matters most.

To date over $40 billion has been taken back by lenders and classified as REO. Approximately $130 billion remains troubled and outstanding, and the balance of $170 billion has either been restructured or resolved.

Us: How much have lenders lost in the commercial real estate market collapse?

Paul: My estimates are somewhere between $70-80 billion. This number would be significantly higher in absence of the various cushions provided by quantitative easing, loan extensions and changes in mark-to-market accounting standards.

Article source: http://www.ocregister.com/articles/big-339920-ucla-buildings.html