The following is a collection of information gathered from various key sources regarding the state of the economy and the impact it is having on commercial real estate and real estate in general, as well as their predictions for the coming months ahead.

It is hardly a secret. Not only is the American economy in trouble, but so is the global economy. Sparked by the mortgage crisis, we have seen the decline of mortgage-backed securities, which was the engine that drove liquidity in the lending industry. When the crisis hit, it was mostly subprime and alt-a mortgage products. However, in a recent interview, Jaime Peters, a Senior Equity Analyst at Morningstar, explained that the crisis has bled into the prime market.

She cited warnings from banks that there is more deterioration to come, as charge-offs continue to trend higher and that they are noticing upticks on credit card usage for everyday purchases, which she said, is an indication of an increasing number of consumers living off their credit cards. While Peters said that big picture credit trends are mostly at the consumer level at this point, she sees commercial real estate as the “next shoe to drop.” While this may be true, Philip Blumberg, Chairman and CEO of Blumberg Capital Partners, anticipates a very strong buying year in 2009.

As noted by Blumberg in a recent interview, buyers of commercial properties within the last 3 or 4 years are now realizing the following:

1. They overpaid for the properties they purchased.

2. The economy did not produce the double-digit increases they expected.

3. They cannot get refinancing, so sales are going to be the only option.

4. The result of these circumstances is an increase in buying opportunities for those who are sitting in a good financial position.

Nick Burnell, Partner of Rutney Capital, shared in an interview last month that although the market continues to trend in this direction, there is a struggle between unwilling sellers and buyers because people cannot agree on property values causing a lack of transactional flow in commercial sales. Burnell shares Blumbergs’ belief that the coming year will present a growing opportunity for investors who wait and a growing alarm for sellers entering in the coming market as it continues to change. The reason, he explains, are as follows:

1. There is a severe dislocation of the market

2. The forces of supply and demand are in turmoil with very little credit around.

3. Huge uncertainties related to the economy.

4. Fears of recession and the continued deterioration and severe dislocation of the market

The real issue, according to Burnell, is how banks are interacting with each other and how they are now afraid to lend to each other. He cites a disconnect between the bank rate and Libor markets. Banks are increasing loan margins on top of lending reference rates, which he said causes the cost of funds to remain unchanged despite rate cuts. Through all of this volatility, Burnell sees interesting opportunities in the institutional commercial property market where yields have expanded and prices were “exceptionally expensive” for the last few years that suddenly seem to be a better value.

Nouriel Roubini of Roubini Global Economics believes that this is the worst recession in the last fifty years. However, despite the adversities in this economic climate, buyers are now facing a time of unprecedented buying opportunities within the next two years—a sentiment shared by many key institutional players. This is not only the case in the commercial real estate market, but also in the residential market for buyers who can qualify under the new stringent lending requirements, as the Feds continue to lower the prime rate.

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