L.J. Melody & Co.

Area office managing director: Michal Makar

Specialty: Commercial real estate debt and equity placement

Year founded: L.J. Melody acquired North Coast Mortgage, which was founded in 1991

Local office: Seattle

The commercial real estate market is ugly, but it probably won’t get any uglier.

That is the assessment of Michal Makar, managing director of the Seattle office of L.J. Melody & Co., a real estate investment banking firm that is a subsidiary of CB Richard Ellis.

“Everyone we’re talking with is saying, ‘Well, we’ve reached bottom,’” said Makar, who added the hangdog look common in recent years has dissipated but only because there is a feeling things can’t get much worse. “I have yet to hear anyone say we’re bouncing back.”

What’s needed for a rebound is job creation. Makar said that outside of Microsoft, there has not been much of that in the Puget Sound region. Boeing has curtailed the massive layoffs, and Washington is still in the running as a site where the company could manufacture its new jet, the 7E7.

Still, Makar’s outlook for Seattle’s commercial real estate market is sour. He predicts that as the national economy improves, the Federal Reserve will boost interest rates in an effort to keep inflation in check. This in turn will cause cap rates to climb.

Makar does not, however, believe this will help the area’s real estate market. In fact, he sees commercial real estate values “probably going down.”

While the occupancy rates of commercial buildings should increase, the expected increase in cap rates will offset the gains, Makar believes.

“Because we will trail the rest of the economy, our real estate markets are not going to get stronger,” he said. “It’s not necessarily going to be a pretty picture.”

All this could have a chilling effect on development, according to Makar. He said rental rates, which have fallen significantly in recent years, would have to climb back up to justify new construction.

How long will the holding pattern last? Three or four years, predicts Makar, who thinks building owners, especially local ones, should be able to hang on. “I don’t see a bunch of building owners racing toward foreclosure,” he said, adding that unlike institutional owners, “who are trying to save their way to success,” local owners are proving themselves more resourceful at keeping tenants.

Another highlight is retail. “Lenders don’t look at us as one of the worst markets in the country,” Makar said. “I feel there are some opportunities for retail.”

Like the office market, the industrial market relies on job creation. The plus for industrial is it does not have as far to climb back as office, which was hit particularly hard by the burst of the dot-com bubble.

“We’ve had a great year,” Makar said. “But it’s all because interest rates are so low.” When rates start climbing, “that’s not going to be great news for us.”