Commercial real estate facing worse days

Some analysts estimate the credit crisis has driven $138 billion worth of U.S. commercial properties into default, debt restructuring, or foreclosure.

Not that lenders are eager to go with the most severe option: taking possession of property.

"It's just not so easy for the banks to go into foreclosure mode," Blank said. "One of the reasons is they need to have income or equity before they can take the losses."

With more than 100 bank failures so far this year, Blank said his guess was that for at least the short term, lenders will opt for a "pretend-and-extend" strategy - settling, perhaps, for payment of interest for a time.

"Everyone is going to try to get through this by kicking the can down the road for a while," he said.

Because commercial real estate is a lagging indicator, recovery is not expected until at least three to six months after the economy shows signs of growth. Meanwhile, more office vacancies are coming.

The recent merger of pharmaceutical heavyweights Pfizer Inc. and Wyeth will result in the closing of Wyeth's Great Valley campus next year. The 87-acre site consists of two buildings with a combined 529,000 square feet.

In Center City, a big question mark is what will become of the 160,000-square-foot Rohm & Haas Co. headquarters on Independence Mall in the wake of the company's acquisition by Dow Chemical Co.

What those properties don't have going for them is "trophy" status like One Liberty Place does.

"Trophy" is the top subsector of the highest class of office building. Compared to the rest of the office sector, it is performing well, said Hirschfeld, One Liberty's leasing agent and senior director at Cushman & Wakefield of Pennsylvania Inc.

One Liberty's crisis years were 2005 to 2007, when it was 42 percent vacant compared with 9 percent today. Asking rent then was $28 to $30 a square foot, plus electric; today, it's $36 to $38 a square foot, plus electric.

On a recent sun-soaked afternoon at One Liberty's bare 54th floor, Hirschfeld was upbeat. He noted that few buildings in the city offered such spellbinding views: the Schuylkill and Delaware River, the Ben Franklin Bridge, William Penn atop City Hall, the soaring Comcast Tower.

"We have prospects," Hirschfeld said. "Whether we're going to do a deal very soon, who knows?"

Go to for more Inquirer coverage of the region's commercial real estate market.

Contact staff writer Diane Mastrull at 215-854-2466 or dmastrull@phillynews.com.