JULY 14, 2016

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Puerto Rico’s default could have negative consequences for CRE

by Reg Clodfelter

On July 1, Puerto Rican Governor Alejandro Garcia Padilla announced the Commonwealth would skip $911 million of its $2 billion due in principal interest payments, sparking the largest ever federal intervention into the U.S municipal bond market, according to Bloomberg. While the event could potentially have wide-ranging effects on the municipal bond market, it also could have a negative effect on the local commercial real estate market.

“Public-sector job cuts may be necessary to bring down overall expenditures,” explains Puerto Rico debt default to have limited impact on capital markets, a report from CBRE. “Because public administration activities account for almost 25 percent of jobs in Puerto Rico, there could be a negative short-term impact on the local office market in the form of rising vacancies and suppressed rents.”

“The retail sector may also experience a short-term contraction, due to the loss of populati

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