By Mike Moloney, President, Commercial Real Estate Institute - Reprinted With Permission

In general, commercial real estate "follows" residential. First, homes get
built, THEN you get a shopping center.

But, financing commercial real estate and investing in it is a completely
different animal.

Second, commercial financing is quite different from residential. For
example, with the exception of some 'user-occupant" loans, such as SBA, the
down payments normally range from 30% to 45%. Commercial lenders on the
whole are quite conservative. They is no mass "secondary market" for
commercial loans which "trusts" the loan originators to check everything.
Due diligence with commercial loans is extremely lengthy, complex, time
consuming, and expensive. The likelihood of "bad" loans being made is very
remote.

Third, In addition, when the government regulators (federal and state) saw
that residential real estate was slowing down, over a year ago, they
tightened up the underwriting for commercial loans. The adjustment has
already been made.

Fourth, small investors were buying houses on speculation. Almost nobody
buys a commercial property expecting to "flip" it in less than 5 years.
Thus, the market is not susceptible to volatility, like the residential
market where any middle class person with decent credit could by another
home with less than 10% down. There has not been a speculative commercial
investment market at all.

Fifth, if it won't cash flow with 30% down, no one will buy a commercial
property (unless their own business will use it - "user-occupant" loan.)
Even "user occupant" loans are not speculative. Most business owners don't
buy a building for their company until the company is generating so much
profit that they need the tax shelter of owning. Tax shelter is the #1
reason why anyone buys a commercial property - and that means that they have
excess discretionary income.

Sixth, commercial real estate reflects the underlying economy, which is very
strong.

Seventh, real estate always benefits when the "securities" market stumbles.
Investors then look for a more stable place to invest their money: real
estate.

Eighth, the fundamental of residential real estate are still strong, and it
will "recover" before the end of 2008. People who want to work can find well
paying jobs. Young people still want to have kids and a home in which to
raise them. Jobs and population are still growing.

Here's possible bad news, though: For the first time in history the
investment banks (who caused the entire residential financing "crisis" with
their "collateralized mortgage bond obligations") are now creating the same
type of "security" vehicle, that is CMBOs for commercial real estate. If
they mismanage the commercial CMBOs like they did the residential, we could
be in for trouble in the next few years. (There is an oxymoron,  for you:
"securities").

In short, commercial real estate is strong and stable. For now. It will
become risky only if "easy money" gets into financing commercial property,
and unseasoned speculative investors, such as those bailing out of the
"stock" market, start over leveraging it. There may be a "copycat hiccup" in
commercial financing until the end of this year, but I doubt it.

All this, In My Not So Humble Opinion (IMNSHO).

What say the rest of you? What are you seeing "on the commercial street"?