The global credit crunch that has rattled financial markets the last few weeks is finally reaching the vast commercial real estate investment and development industry.
Predictions by some analysts that prices are poised to drop for office buildings and other commercial properties are sending shivers through the business, driving down real estate company stock prices and delaying some deals.
"We are seeing fewer people at the table, but when it comes to the best buildings, there are still plenty of people who want to buy them," said John Cushman, chairman of real estate brokerage Cushman & Wakefield.
But bidders who have been borrowing heavily to leverage property acquisitions are falling away as lenders shut out marginal players, Cushman said. So far, though, the long-robust market has cooled but not collapsed.
Instead, doubt reigns as many buyers and sellers wait to see what is going to happen to the economy and whether it will continue to get more difficult and expensive to borrow money, Cushman said.
"There is just a lot of uncertainly and volatility in the market," he said. "The dust hasn't settled yet."
Archstone-Smith Trust in August postponed its $13.5-billion sale to a group led by Tishman Speyer Properties until October. Mission West Properties Inc., owner of commercial buildings in Silicon Valley, said Aug. 13 that the company's $1.8-billion sale might fail after a bank withdrew funding.
Southern California has emerged as one of the country's top markets for real estate investment in recent years, with institutional and individual investors betting that its economic growth will continue to support property appreciation.
Last month a Houston real estate investment trust paid $287 million for the One Wilshire office building in downtown L.A. and a local investor spent $200 million to acquire Sunset-Gower Studios in Hollywood.
But the same angst affecting the rest of the country is being felt here.
Keeping the market alive are deep-pocket investors such as pension funds and insurance companies that can still get loans to buy expensive real estate, said Robert White, president of real estate data provider Real Capital Analytics.
Nevertheless, he said, the recent increases in the cost of borrowing money stand to make pending real estate purchases less profitable in the long term, prompting some buyers to walk away or to try to negotiate a lower price.
