Dominoes Begin to Fall In Commercial Real Estate

Opus West a full service real estate development company with local offices in Pleasanton California, and an independent operating company of the Opus Corporation, has declared bankruptcy (link).

Some of the local projects effected are:

Opus Center San Jose
San Jose, CA

Fremont Tech Center - Phase I
Fremont, CA

So what you may ask... Well, (in a very simplified view) as the Commercial Real Estate market deflated (rapidly) over the past 12 months, some unlucky landlords and developers who had recently purchased their projects (within the previous 18 to 36 months), were stuck holding properties that were suddenly worth significantly less than the values on their books. This meant that even while market rents were crashing, as vacancies were climbing, these landlords could not adjust their rents as rapidly, BECAUSE they had to work with the inflated values that they had sitting on their balance sheets.

As these owners begin to venture into default and/or bankruptcy, these buildings will go back onto the market, and will sell at the current (lower) market price. This will then allow the new landlords to reset rents to the now current (lower) market rate, which means rents will come down.

This will be a painful BUT very necessary process as the market corrects itself.