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CRE Has Survived Crises In the Past and It Will Overcome This One Too
The CRE industry in the U.S. is a large and diverse alternative asset sector valued at about $15 trillion. The industry is very resilient and adaptable even though many pundits over the decades have called for its collapse and extinction. Since the 1980s, the country has been through numerous recessions and real estate crashes as follows:
- Recession and high interest rates of 1980 to 1982
- S&L, real estate, and oil crash from 1987 to 1992
- Recession of 1990 to 1992
- com crash of 2000
- Recession of 2001
- The Great Recession and real estate crash of 2007 to 2012
- COVID recession of 2020
In each of the above downturns, the CRE industry has suffered mightily with substantial loan defaults, foreclosed assets, and billions in lost investment. In the crash of 1987-1992, the value of all property types declined at least 60% and there were thousands of vacant and "see-through" office buildings and run-down apartment complexes scattered in every market in the country. The carnage was especially bad in the southwest states of Texas, Arizona, and Nevada. In the Great Recession, the value of the average CRE property also declined precipitously to about 50% and there were thousands of defaults, foreclosures, and lawsuits.
During each of these calamities, the pundits proudly proclaimed the death of the CRE industry, and many properties would be vacant, untenantable and need to be demolished. However, the CRE industry has thrived over this 40-plus-year period, even with all the defaults and foreclosures. Does anybody remember the Resolution Trust Corporation that was created in 1989 and sold much of the foreclosed S&L real estate assets at 30% and 40% on the dollar? Investors at the time who bought these discounted assets made huge profits years later when the assets were sold. This period also saw the creation of most of the public REITs that exist today.
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