The ubiquitous refrain at any gathering of commercial real estate professionals in the past 24 months can be summed up in a few short questions: Are you busy? Who is lending? No, seriously, who is lending? And — of course — when will this end?

            As 2011 kicks into gear the refrain is the same but our answers (hopefully) are beginning to take a turn for the better. The refreshed outlook is largely supported by a recent Morgan Stanley report titled “CRE Recovery in Place: Investment Cross-Currents.” Though heavy with charts and graphs, some of the positive takeaways include:


            1.         2010 formed a solid bottom and 2011 should see gradually increasing commercial asset prices and risk appetite. The caveat? Recovery is still market-by-market and much slower in those areas where housing is a primary economic driver.


            2.         A base (i.e. middle of the road) projection of a 12.5% increase in value for commercial real estate assets. This would leave prices about midway between the 06-07 peak and the 2009 valley.  As many owners begin to get above water on their loans, lending can be expected to pick up.


            3.         Bank losses on commercial real estate will remain high, but will begin to decline in late 2011 or early 2012. While the ratio of non-performing loans continues to be above average, forward-looking projections of delinquencies have decreased. As this improvement moves forward, expect CRE-heavy banks to out-perform others. Perhaps this could drive banks back to the market?


            4.         Strip-center based REITs will see a pick-up as major anchor tenants, including Wal-Mart, Best Buy, Dollar General and Jo-Ann Stores, have announced expansion plans for 2011.


This is music to the ears not only of real estate professionals like us, but also to the commercial property owners that had to sit on assets to avoid taking large losses through this past cycle. Maybe at our gatherings in 2012 we’ll be asking when we’ll get our next vacation instead of our next deal.