Commercial property market in Utah County faces headwinds

(DAILY HERALD) -- The ongoing recession, which had its roots in the collapse of the subprime mortgage market two years ago and then spread like a mutating virus to banks, retailers, manufacturers and automakers, now has the commercial real estate market in its grip.

Just as the local and national economies are struggling to regain their footing, commercial mortgage defaults are mounting because of tight credit conditions, along with reduced property cash flows and declining values. And with unemployment still on the rise, fewer employees mean businesses would need less space, and less rents for property owners could in turn hamper their ability to make their mortgage payments.

Case in point, the Shops at Riverwoods in Provo, which has been struggling with weak retail sales and the bankruptcies of two of its largest retail tenants in recent years, was foreclosed on in March after it defaulted on mortgage payments on a $26.5 million loan.

Not surprisingly, widely publicized commercial projects like The Boyer Co.'s Southgate Center in Provo, John Q. Hammon's Embassy Suites hotel and convention center in Pleasant Grove, and the Fashion Outlets at Traverse Mountain, are delayed nearly two years after they were announced. That's due in large part to the tight credit environment, which continues to thwart many developers' efforts to obtain construction financing especially for large commercial projects, as well as weak consumer spending, which made many national retailers scale back their development plans.

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