The danger of a collapse in the commercial real estate sector seems to have been overcome due to the low interest rates, but investors are still waiting for the second shoe to drop in the downturn, Richard LeFrak, the LeFrak Organization president, told CNBC.
In September last year, analysts said that commercial real estate was in danger because trillions of dollars of loans needed to be rolled over and the funds to refinance them would not be available.
The effects of the credit crunch on the commercial real estate sector were predicted to start showing in 2010
“That shoe was stopped by a very, very aggressive interest rate management policy by the Fed,” LeFrak said.
“So what happened is that interest rates are so low, that some real estate is actually inflating pretty hard now,” he said. “And it’s all because they kept rates down so low that a lot of the day of reckoning just never happened. So we’re all waiting for it.”
Some property on the West coast is cheaper as there is “still some good economic growth to occur in that part of the country,” LeFrak said.
Seattle, Los Angeles and Portland are “more robust” than others such as Phoenix, Las Vegas or Atlanta, he said.
“I deal with consumers at an interesting level – I rent apartments to them,” LeFrak added. “In certain markets, they’re doing very well. There’s been very much an increase in the market for rental apartments.”
New York, Florida and the West coast are areas where rents are doing well, he said.
Business people are waiting for the mid-term November election to see how the economy will turn, LeFrak said.
“In the business community I think it’s pretty common knowledge right now that this coming election is going to have a lot to do with people’s attitudes, not necessarily about the economy but about the future,” he said.
Lowering taxes is one way of boosting economic growth, according to LeFrak.
“You can’t say on one hand ‘hey we’re going to raise your taxes’ but then ‘you have to hire people,'” LeFrak said.
He said he was optimistic that the US would overcome the downturn.
“I think the worst is really behind us,” LeFrak said. The economy will “heal itself” due to the entrepreneurial spirit and “the great energy of people in this country.”
“We’re saving a lot of money now in this country, it’s a real change,” he said. But, when people will feel more comfortable that their jobs are safe, they will spend more money and will invest in real estate again, according to LeFrak.
“It’s a process, and you can’t rush it anymore. We’ll come out of this thing, whether it’s a year, two years, we’ll come out of it,” he said.