Last week's Business Week has a big, front page story about the impending wave of commercial real estate foreclosures that certainly is scary. The article talks about how many really big companies and really big, important properties are in really big trouble and how many will end up falling into foreclosure or bankruptcy in 2010. Great, just what we need, another tsunami of foreclosures and bankruptcies to help the economy along. The issues in that space are as complex and muddled as they were in the residential space, perhaps more so.
I can see this happening even in my little village, where "office space available" signs are all over and store fronts sit empty after businesses have failed. Driving around the area there are tons of commercial buildings sitting empty and starting to deteriorate. We have an especially large supply of old manufacturing sites that have been abandoned in Michigan, most from the automotive companies, but quite a few from other companies that have shipped manufacturing operations to China or elsewhere.
This is a problem that the Federal government might have trouble helping with. I can't imagine a "first-time manufacturer" program to subsidize factory purchases; although there are state tax breaks available to those willing to locate their manufacturing in Michigan. Many of the empty manufacturing plants have major environmental issues that future owners might have to deal with, too. That can be a deal breaker for a start up company that is just looking for a place to set up a plant. There is also a glut of both retail and office space available, which is a holdover from the giddy days of the building bubble in the late 1990's and early 2000's. The days of a strip mall on every corner are over, but now what are we to do with all of that empty space? The other big issue in our area is the huge negative impact on the tax base that will be caused by the expected 40-70% drop in commercial property values. A recent article in the local newspaper suggests that this is the issue that will sink several municipalities and school districts into failure. In Michigan, we have many small cities that are heavily industerial or commercial and they will likely go under when the tax money dries up from these sources.
Hopefully we can get through this next wave of real estate foreclosures without swamping the national economy again. There doesn't seem to be the stomach for many publicly funded bailouts in this space, at least not yet. We'll have to see if there are some commercial owners who are "too big to let fail." I can just see the outcry if we all end up bailing out The Donald or some other high profile commercial landlord.
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