Mortgage bankers acknowledge that the commercial real estate sector has stabilized, property valuations have recovered, and liquidity has returned to the sector. But they are also mindful about lessons learned from the last real estate cycle and express caution about the future.

Speaking at the opening session of the Mortgage Bankers Association’s Commercial Real Estate Finance/Multifamily Housing Convention & Expo, panelists expressed optimism, but suggested there remain significant weaknesses in the sector: Fundamentals are still soft and are slow to recover in certain sectors, cap rates may have fallen too much, the process of real estate deleveraging has reached only its mid-point, and substantial “pain” may still lie ahead as the commercial real estate sector rights itself.

“The good news is that we are now in the upward phase of the real estate cycle,” says the panel moderator, Michael Berman, 2011 MBA chairman, and president and CEO of CWCapital. Berman points out it was only 18 months ago that there was “zero” lending in the sector.Patrick Halter, CEO of Principal Real Estate Investors, says there is “definitely” a recovery in commercial real estate valuations.

For the first time in the past two years, there have been vacancy declines in all major property types except retail. “There will likely be additional room for pricing power in 2011,” says Halter, noting that supply is currently inadequate even to counter asset obsolescence. Nevertheless, although there is “pricing recovery,” Halter has not seen much “space recovery.” And there is still not a lot of landlord pricing power in all sectors except for multifamily, which saw strong performance in 2010.

Source: Commercial Property Executive