Investing in commercial real estate is not for the faint hearted. One thing the financial crisis has taught us is that property values can go down as well as up. Most commercial property funds around the world are currently frozen, meaning investors may not withdraw their investment.

Originally, these funds were frozen for a limited period of time, but as the crisis deepens the freezes have been extended. Most commercial real estate has seen a substantial fall in value – at least a 40% fall over the last year, and this will mean inevitable losses as most commercial mortgages are short lived – 5 years. As they need refinancing over this year and next, many investors are going to discover that banks are not willing to refinance a property that is now worth substantially less than when the original mortgage was taken out.

This means either defaulting on the loan – or coming up with the shortfall in cash. Either way, the commercial mortgage defaults have the potential to far outweigh the residential ones.

As the world moves into a deeper recession (the US voodoo banking stress tests notwithstanding) commercial property will continue to see falling demand and values. No one expected the banks to fail the stress tests, although I personally fail to see why a solvent bank would need to raise more capital.

In Las Vegas for example, commercial property development has come to a complete standstill. There is already a 28 percent vacancy rate, so most developers – if they are still in business – are taking the view that it is better to cut their losses and walk away from a development rather than to throw more money into what is unlikely to be sold or let out in the foreseeable future.

But, one man’s loss is another man’s gain. For those with the wherewithal and patience to wait for an upswing, there may well be bargains to be had in the commercial real estate sector. Las Vegas may be one of the worst hit markets currently, with Casinos going broke left and right, but it could offer the best bargains also.

Realistically, one must take a gamble here – will the upswing take place in time to make an investment in commercial property worthwhile? Some markets will recover quicker than others. Some markets may never recover in our lifetime. It is estimated that there is 100 million square feet of empty commercial space in Beijing, China. That would be a longshot bet to me. Las Vegas is another gamble. There is a huge amount of investment property for sale in Las Vegas, and other parts of the US. An upswing will, no doubt happen, but in some areas, I suspect it will be too little, too late for a lot of developments.