Atlanta real estate has been in the muck and mire for a few years in residential real estate. There is a growing awareness that it will not end there. For many living in the Atlanta area that pose the question "If Atlanta is in such bad shape, why is all the Atlanta commercial construction going on?" The problem with commercial lending and development is that is is a lagging indicator. The time-frame for commercial real estate from inception of the idea, studies, impact assessments, community hearings, approval of the project and development could exceed 5 years. By the time a project is approved, it does not mean the economy is in the same shape as when the project was conceived. A lot of commercial projects are also no different than a speculative residential home. The difference is a home may cost $200,000 on a single family Atlanta homes and the cost of an Atlanta commercial project could be $60,000,000. When credit was lax more of each of these projects were probably built on speculation. In the past there would be a promise of pre-sold units in a residential condo development, but anything goes when you are speculating. Traffic studies, pre-leased units, and percentage of occupied vs. vacant units may not even be considered. If you ask me that is pretty risky business! The problem is that the money comes from someplace. A bank, private investors, a Real Estate Investment Trust, and Insurance company etc... That means that if the project does not do as it was intended to do....make a profit, and pay back the original investors over a period of time there is a major problem. The banks, lenders, bailout monies, and TARP funds - and ultimately taxpayer monies will be at full risk if there is no demand for the product.
In an article published today in the Wall Street Journal on Line there are some very serious questions raised about the Atlanta commercial real estate market that should be addressed. To say the least eh artricle was an absolute eyeopener to me. I pay very little attention to Atlanta commercial real estate, but this has to have an impact on the Atlanta real estate market and economy for many years to come!
In Atlanta, Irrational Building Exuberance - ALEX FRANGOS 4/25/2009 Wall Street Journal Online.
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Jim,
Georgia banks have figured prominently in the faild bank list. Is alot of the failures due to commercial lending?
Richard
Richard Smith Mortgages Home Loans FHA TN GA AL (American Acceptance Mortgage, Inc) I personally believe the commercial real estate wasn't a major part of the picture until now. Rising unemployment and layoffs have exaccerbated a already very critical condition.