Commercial real estate is next shoe

Take a Sunday drive. Up Piedmont toward Buckhead. Turn left or right at Peachtree. Along the way, notice all the new buildings. The offices, condos and retail shops.

Vacant new buildings.

As someone remarked: The only difference between Atlanta and Detroit is that our empty buildings are new.

The next shoe to drop will be the implosion of the commercial real estate market.

About $400 billion in commercial mortgages are set to mature this year across the country, the president of the Atlanta Fed told the Miami Chamber of Commerce last week.

While not as large as the $11 trillion residential mortgage market, $2.5 trillion of commercial loans are held by banks and securities markets, Dennis Lockhart told the suffering Floridians.

Closer to home, developers, brokers and investors are bracing for what even this eternally optimistic group refers to as a bloodbath.

According to the property management and real estate investment firm Jones Lang LaSalle, the vacancy rate in Buckhead will increase from 15 percent at the end of last year to 23 percent by next year. That’s more than twice the 10-year average.

The intown picture improves somewhat when Buckhead is combined with Midtown and downtown. The vacancy rate will climb this year toward 20 percent next year.

Outside the Perimeter, things look almost normal, with a slight dip in vacancies, according to Jones Lang LaSalle.

Commercial real estate in Atlanta has been on a downhill slide for more than a year. But the slide will become an avalanche in the next six months, says Jay Mannelly of Bullock Mannelly Partners, one of Atlanta’s oldest commercial real estate investment brokers.

He’s referring to the time frame when the renewals on construction loans and the debt on existing buildings will be coming due.

Sales aren’t happening, except in desperation.

Refinancing debt on existing buildings will be difficult since fewer occupants equal less rental income.

Call it a bloodbath, avalanche, tsunami or the other shoe. Regardless, it will not help the mess known as our banks’ balance sheets.

Banks are the primary source of construction loans, and as Lockhart told his Miami audience, banks “may end up keeping those loans if the properties cannot achieve the cash flow needed to service new permanent debt.”

Just what the banks need.

Maturing loans on existing buildings won’t fare any better in the private investing or securities markets, Lockhart said. That market shut down last year.

As grim as the near term appears, Atlanta’s never-say-die attitude is still alive, if on life support. You can hear it if you lean in close.

“I have a fundamental belief in human nature,” Mannelly said. “We’ll make it through this.”

One can only hope.

toliver@ajc.com