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THURSDAY, NOVEMBER 26, 2009
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Credit Freeze Hits High Fliers of Commercial Real Estate

Slowdown plus tough credit slams office market

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(Newser) – When the commercial real estate market was hot, the sky seemed to be the limit, and increasingly complicated financing arrangements were common. Now the combination of economic crisis and credit freeze has exposed the market's precarious underpinnings, which resemble the pitfalls that brought the residential real estate sector to its knees. One analyst tells NPR: "I call it the commercial real estate of the subprime loan."

Overleveraged developers have been caught with their pants down as the rental market ices over and property values plummet. Residential credit has loosened slightly, but commercial borrowers are scrambling to cover short-term loans one developer compares to "a time bomb." Even developers with solid credit ratings are getting the cold shoulder. “You've got an absolute freeze going on in the credit markets,” says the developer.

Frozen credit markets make commercial real estate deals--like the sale of the New York Times building--difficult.
Frozen credit markets make commercial real estate deals--like the sale of the New York Times building--difficult.   (AP Photo/Frank Franklin II, File)
Construction continues on the Freedom Tower of the World Trade Center Thursday in New York.
Construction continues on the Freedom Tower of the World Trade Center Thursday in New York.   (AP Photo/Frank Franklin II)
The Seagram Building, center, at 375 Park Avenue in New York. Commercial real estate quickly is losing its appeal as the economy slumps.
The Seagram Building, center, at 375 Park Avenue in New York. Commercial real estate quickly is losing its appeal as the economy slumps.   (AP Photo/Bebeto Matthews)
666 Fifth Avenue in Manhattan.
666 Fifth Avenue in Manhattan.   (David Shankbone via Wikimedia)
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When you found the money, you put a time bomb in your pocket because most of the time that money was short-term money and had to be replaced by other money within a year."
- Lawrence Fiedler,
Commercial developer

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