Commercial Loans the next trouble spot for banks?

by LJ Miehe on February 18, 2009

This is the next shoe to drop in our global financial crisis.  Right along with the residential real estate bubble that happened across the globe, the commercial real estate bubble expanded.  A buddy of mine who has been a commercial mortgage banker for decades said that over the next 3-4 years, we will see many commercial loans coming due for refinancing.  With the banks and other financial institutions reeling from subprime and derivative losses, it looks like we will have much more supply on the market than able lenders.  I have heard rumblings that the U.S. government might have a bailout program in the works for the commercial real estate.

News:

Commercial loans are the next potential trouble spot for banks nationwide, and especially for those doing a lot of business in Michigan.

Banks with large presences in the state have seen increasing write-offs in commercial lending, and one sector analyst looks for that trend to continue.

Brian Klock analyzes Comerica for Keefe, Bruyette & Wood, and said nonperforming commercial loans are catching his attention.

“A lot of those commercial loans are domiciled in Michigan,” he said. “The expectation is those losses will accelerate.”

One of the effects of such losses is that banks are pulling back from making new commercial real estate loans, and even hesitating to refinance existing loans, said Ann Arbor commercial broker Jeff Kleinschmidt.

“Banks are dialing back on the deals they’re going to do,” he said. “Only the best deals are getting done.”

Kleinschmidt doesn’t predict significant amounts of foreclosures or bank repossession of commercial property, but said there are a lot of “candid conversations” going on between lenders and borrowers regarding how much capital can be extended.

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