Friday, June 11, 2010

Reporter's Notebook

Paul Leonard can be reached at

Waiting for the crash

Many a Just Business reader is probably taking one look at the header to this column, thinking, “More bad news?”

But wait. The fact that the crash I’m referring to – the long-promised wave of commercial real estate loan defaults – has yet to materialize, is definitely not a bad thing.

However, to be sure, it is not a good thing either.

With a rebound in demand for office space far beyond the horizon, and with vacancy rates in Clark County beginning to tick back upward after more than six months of small yet steady declines, the commercial real estate market is far from anything approaching a recovery.

However, it still has not tanked. If there was a bubble in commercial real estate, instead of bursting, the sound one hears in the empty halls of buildings from downtown to east Vancouver is the high-pitched whine of air as the market deflates.

At 415 W. Sixth St. downtown, that sound is more like a “whoosh,” with the Vancouver City Council set to vote on a possible $18.5 million purchase of the bank-owned property, once listed for $41.5 million.

Luckily for investors, developers and bankers alike, the 118,000 square-foot office building seems to be the exception, not the rule in Clark County. At least, so far.

Nationally, real estate behemoths like private equity firm Blackstone Group, owner of Hilton Hotels, have managed to restructure their debt to give themselves some breathing room as the economy recovers. Locally, patience seems to be the name of the game for landlords.

Whether these moves are the equivalent of kicking the “can” of commercial real estate foreclosures down the road is anyone’s guess since the question rests on the still-uncertain fate of the overall economy.

But in an age of collapsing markets, of toxic assets and talk of “flawed” capitalist systems, the commercial real estate sector is demonstrating one remarkable virtue – flexibility.

As of this writing, the commercial real estate sector may yet prove that, when it comes to this corner of the market, cooler heads will prevail – that tough financial decisions may yet be made based on a sound fiscal foundation and not hysteria.

However, we’re not out of the woods, not by a long-shot. There’s still much to be done to ensure the fate of 415 W. Sixth St. is merely the fodder of real estate developers’ collective nightmares and not the stuff of everyday reality.