And Now For The Commercial Real Estate Bubble
Remember this back on 4.24.09:
I know you folks are very savvy, paying attention, and doing math with a real pencil instead of a red crayon, so what comes next is NO SURPRISE to you. Are we all ready for the next part of the rollercoaster ride when the commercial real estate bubble implodes? If you still have money in the stock market, why is that? (Once again, bold emphasis is mine, and may I repeat how screwed we are?)
Well today, 7.9.09, we have this:
WASHINGTON — Owners of shopping malls, hotels and offices are defaulting on their loans at an alarming rate, and the commercial real estate market is not expected to hit bottom for three more years, industry experts warned Thursday.
“The commercial real estate time bomb is ticking,” said Rep. Carolyn Mallory, D-N.Y., who heads the congressional Joint Economic Committee.
Delinquency rates on commercial loans have doubled in the past year to 7 percent as more companies downsize and retailers close their doors, according to the Federal Reserve. Small and regional banks face the greatest risk of severe losses from commercial real estate loans.
The commercial real estate market’s fortunes are tied closely to the economy, especially unemployment, which hit 9.5 percent in June. As people lose their jobs, or have their hours reduced, they cut back on spending, which hurts retailers, and take fewer trips, which hits hotels.
Funding for commercial loans virtually shut down last year as the financial system unraveled. Industry executives say financing is still extremely difficult to obtain, even for financially healthy properties.
While that may seem like an abstract problem, it has real-world consequences. New construction projects have come to a virtual standstill. That means reduced tax revenue for local governments and fewer construction jobs, said Jeffrey DeBoer, chief executive of the Real Estate Roundtable, an industry group.
The commercial property industry is “not going to turn around until consumers and businesses start spending money again,” he said.
Total losses in securities backed by commercial property loans could be as high as $90 billion in the coming years, according to Deutsche Bank analyst Richard Parkus. He says even more losses — up to $140 billion — are expected from construction loans made by regional and local banks, rather than those sold as securities held by investors.
“We believe the bottom is several years away,” Parkus told lawmakers.
Are you ready folks? Still have money in the stock market?