Rise in commercial real estate vacancy rates leads to meltdown concerns

From an unfinished shopping mall in Elk Grove to the ghostly quiet office parks of South Placer, the slump that has overtaken commercial real estate could rival the meltdown in the housing market.

Across the Sacramento region, vacancy rates have soared while rents and property values have plummeted, leaving many landlords struggling to pay their mortgages. A few are in bankruptcy protection.

Sacramento's troubles are worse than most, according to national analysts, but the threat looms across the entire country. With the national economy seemingly poised for a recovery, some experts fear the recession could be prolonged if commercial loans go bust like residential mortgages.

"It's very analogous to what happened with the residential market," said Mark Friedman, a prominent Sacramento commercial developer. "Money was cheap, growth was rapid, and we built a lot more product than we needed."

Others, though, say the problems in commercial don't run as deep. Most developers didn't borrow as recklessly as homeowners and are able to cushion themselves against falling revenue streams.

"People were so highly leveraged in their homes — they were borrowing against them to buy their big-screen TVs or whatever," said Mitch Derenzo, chief financial officer at American River Bank of Sacramento. "It doesn't appear that the commercial side is so highly leveraged."

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