Momentum has been slow to return to commercial real estate in the Inland Empire, but real estate experts are predicting that some areas are expected to recover sooner than others.

They also say some sectors of the market, such as industrial, will remain more stable than sectors that were over-built, such as commercial office space.

One of the issues affecting the commercial real estate market has to do not only with financial lending institutions, but the borrowers themselves.

"The core principle of banking is lending, so the way out of where we are right now is lending," said Karen Racusin, U.S. Bank senior vice president, regional manager in Southern California. "The reality is that volumes are all down. That is an industry reality. The issue really is appetite. There is a change in what people want to borrow with."

Racusin said she wanted to stimulate a dialogue about the new reality in the commercial real estate market.

Instead of focusing on what led to the downturn, Racusin feels it is important to talk about how to function in the new economic reality.

"There is so much inventory today in every sector that some of the requests that are coming in don't make sense," she said. "And that is also a new reality."

As of the end of the third quarter, commercial real estate firm Grubb & Ellis reported almost 24 percent of the office space in Riverside and San Bernardino counties was vacant, up from 13 percent in the previous three months.

Developers who thought they were getting a bargain when they bought cheaper land in the Inland area three years ago now don't have enough tenants to provide a revenue stream to start paying off the loans they took out. Several experts believe the area could see a wave of foreclosed office buildings in the next few quarters.

Racusin was one of four real estate experts who participated in a panel discussion, Nov. 18, hosted by the Inland Empire chapter of the Commercial Real Estate Women.

"The whole purpose of putting this panel together was to get some clarity," said Ruby Simpson, president of CREW's Inland Empire chapter.

As far as recovery goes, the real estate experts seemed to be in agreement that the western portion of the Inland Empire will recover faster than its eastern territory, which is roughly east of a line from Sierra Avenue in Fontana to Perris.

The experts primarily discussed the outlook for the real estate industry and their predictions for the commercial real estate in the coming year. There was consensus that there is still a ways to go before the market will rebound.

"I don't think it's going to turn around until unemployment comes back," said John H. Renken, president and broker for The Renken Company in Claremont.

Renken said that it has been difficult to derive values for appraisals because there have been too few transactions. If sales improve next year, at least there will be a base to work with, he said.

"I think next year the hope is that some of this product will come back," Renken said. "I think we've got a long ways to go."

Racusin said she believes the commercial real estate crisis is in its sixth inning. She is seeing early signs of recovery, starting with industrial real estate. She cautioned, however, that there remains $1.5 trillion in toxic assets that has yet to come through the financial system. "I think we still have a bumpy road," she said.

Deborah Gallagher, senior vice president and director of SBA lending for Community Bank, agreed that there are signs of recovery.

"We're seeing a lot of equipment activity which was pretty non-existent at the beginning of the year," she said.

The financial climate has made lending institutions cautious. Banks that are lending, Gallagher said, have been monitoring their portfolios, re-evaluating properties almost every 90 days.

She predicted that more banks failures could come, and stabilization may finally arrive at the end of 2010.

Likewise, Erik Hernandez, senior vice president for Lee & Associates - Ontario, has seen evidence of things turning around. There will be more building sales in the fourth quarter of 2009 than in the first two quarters of the year, he said.

The experts also discussed how industrial space has fared better than other commercial real estate sectors in the downturn because less was built. A glut of office space remains a problem.

Renken said that he has observed that those who are buying industrial space plan to use it, not rent it out.

The momentum in the market is being created by owner occupiers, who are jumping into the market because of low interest rates and because conventional lending is available, he said. Lending for investors is more stringent, requiring 50 percent down, while owner occupiers are only required to put 10 percent down. Investors are holding back until there is more velocity in the market, he said.

Racusin said she feared that too many people are waiting for prices to fall, in order to get the best bargain possible. She advised that for the recovery to take hold, more real estate buyers will need to jump in.

"Somebody has to lead us out of here," she said. "If you take one thing out of here, we have to create trust, or we'll all be standing out here waiting for just the right deal."