The value of commercial real estate property is expected to remain depressed, perhaps for several years, in part due to a surge in the number of lender-controlled properties in the Baltimore area, a recent study suggests.
Approximately 49 office buildings -- close to 10 percent of the Baltimore area office market -- is currently controlled by lenders, according to the W.C. Pinkard report. Those properties represent approximately 3.3 million square feet of space.
The properties have been taken over by banks and other institutions through foreclosure or receivership.
The report predicts that the factors that led to lender takeovers -- including overbuilding, restrictive lending practices and bankruptcies -- will persist for several years.
"The numbers are going to fluctuate," said Jeffrey B. Samet, a Pinkard vice president and author of the report. "Eventually, the market will right itself and the problem will be taken care of."
Most of the properties held by lenders are concentrated in Howard County and Baltimore, the report states. Approximately 39 percent of all lender-held properties are in Howard County, and 33 percent are in the city.
Depressed property values should come as lenders are forced to liquidate property at discount prices, says the report. Also, lease rates will be kept low as the competition for tenants forces leasing concessions among lenders and owners.
Meanwhile, new construction is expected to be rare -- mostly in cases of built-to-suit projects -- until the vacancy rate among lenders and owners is substantially reduced.
"The Baltimore office market is overbuilt," the report says. "Many of the traditional sources of demand -- banks, insurance companies, area defense firms, business service firms such as accountants and ad agencies, and law firms -- are reducing their need for space because of weak economic conditions."
While the vacancy rate among lender-held properties is 48 percent, Samet said, the overall vacancy rate in the Baltimore area is only 18 percent and is "not as high as in other parts of the country."
"Baltimore real estate is having difficulties, but it's happening all over," Samet said.
"New construction -- an important source of job and income growth over the past five years -- will not be possible until lenders and owners are able to reduce their vacancies and bring rents up to the point that new construction is supportable."
The Pinkard report was the first to focus on lenders since the company began tracking office absorption 10 years ago. Officials said the new category was added because of "recent changes in the real estate climate."