Analyst: Fears of commercial real estate collapse unfounded

Despite fears of a looming crisis, at least one observer of the economy believes talk of a collapse in commercial real estate may be unfounded.

Tuesday morning, John Augustine, the chief investment strategist for Fifth Third Private Bank, revealed his relatively bullish outlook for the economy and stock market for 2010. He spoke to a small group of Fifth Third bankers and guests at the Tampa Club in downtown Tampa.

In the near future, some $400 billion to $600 billion of commercial real estate loans are set to mature, Augustine said. With so many banks reluctant to refinance loans lately, many are predicting commercial landowners to default en masse when they can't get new financing.

Augustine, who is based in Cincinnati, said that's not a certainty, though. For now, the stock market seems to believe in the future of commercial real estate, he said.

For example, the Standard & Poor's BMI REIT index, which tracks the performance of stocks of real estate investment trusts - publicly-traded firms that hold real estate - is up 4.7 percent over the past year, he said.

Big REITs, such as mall-owner Simon Property Group, have raised cash by issuing stock and debt and now sit on "war chests," with which they can buy property, Augustine said.

To be sure, most of the commercial property in Florida is held by small private companies and investors, not big real estate investment trusts. However, Augustine said he believes banks today have returned to profitability and, moving ahead, will be more willing to refinance commercial mortgages. That should prevent a commercial collapse, he predicts.

Among other observations, Augustine is predicting:

Talk of the next "bubble" in emerging countries. Over the past year, investment in emerging countries such as China, India, Brazil and Eastern Europe has gotten super-charged. An index that tracks emerging markets, the MSCI Emerging Markets index, is up 71 percent over the year.

Augustine didn't predict a bubble in emerging markets, but said he expects to see investors speculate about a bubble if things don't slow down.

No double-dip recession. This week, the government is expected to release gross domestic product figures that show a return to growth for the economy. Some economists worry that the country could exit the recession, only to fall back into another one. However, Augustine said that massive amount of stimulus money from the federal government should prevent such a double dip in the economy.