Slow-down hitting commercial real estate?

The scope of our economic troubles seems wider and deeper than many of us want to admit.  If you are a real estate owner looking to refinance your current property, sooner rather than later may be best option.  I recommend you do your homework now and explore all of your options.

For the full article, go to the wall street journal article.

Here’s a summary:

Cracks are starting to show in commercial construction.

For the second month in a row, the Commerce Department reported a decline in spending on nonresidential construction — which includes everything from hospitals to office parks to shopping malls. The report yesterday showed construction spending fell 1.7% in January from December, the steepest drop in 14 years. While residential construction accounted for a big part of the decline, spending on nonresidential construction slid 0.8%.

Meanwhile, there may be an oversupply of shopping malls and office buildings after a period of intensive construction. It adds up to bad news for employment, the economy and investors.

While the boom in commercial construction wasn’t as dramatic as in home building, the impact of a slowdown on the economy could be significant. Nonresidential construction accounted for 3.6% of gross domestic product in the fourth quarter of 2007, up from 2.5% five years ago and the most since the second quarter of 1988, according to Moody’s Economy.com.

As home construction got caught in a downward spiral last year, nonresidential construction continued to expand at a healthy clip. Spending on nonresidential structures rose 16% in 2007, the biggest four-quarter increase since 1984, according to Morgan Stanley.

Signs of trouble cropped up at the end of the year. As credit markets tightened, office space sold in the fourth quarter dropped 42% from a year earlier, and sales of large retail properties declined 31%, says Real Capital Analytics, a New York real-estate research group.

If spending continues to slow, construction workers, who are reeling from the housing slowdown, face more layoffs. Construction jobs made up 5.4% of nonfarm payrolls in January. While that’s down from a peak of 5.7% in April 2006, it’s still above the long-term average of 4.9%, say economists at Payden & Rygel in Los Angeles, leaving room for more job losses.

Nonresidential construction payrolls, down 2.7% in January from their recent peak in March, posted year-over-year declines in December and January, the first such drops since August 2004. A construction slowdown will be especially tough on specialty-trade contractors, such as plumbers, painters and electricians, who account for about two-thirds of overall construction payrolls. This could spell trouble for consumer spending, which accounts for two-thirds of the U.S. economy.

Another problem: Property values of commercial real estate are declining. A Moody’s index of commercial real-estate values fell 1.5% in December from the previous month. It was the fourth steepest monthly decline in the seven-year history of the index, which nearly doubled from the end of 2000 through October.

Moody’s expects a peak-to-trough decline of 15% to 20% in commercial real-estate values, returning prices to where they stood about four years ago. Goldman Sachs Group Inc. analysts have projected a drop of as much as 26%.

The outlook is souring. Retailers have reported a slowdown in sales. Wal-Mart Stores Inc. and J.C. Penney Co., among others, have pared expansion plans. Electronics seller Best Buy Co. has reined in its quarterly earnings forecast. Talbots Inc., Movie Gallery Inc.’s Hollywood Video and numerous home-furnishings retailers have announced store closings. Others, including Bombay Co., have liquidated under bankruptcy protection.

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