Editor’s Note: $287 Billion in losses from commercial loans attached to real estate is nothing to shake a stick at. Many of these “Interest Only” commercial loans are resetting and or coming due in a market that is weak at best. Many reports have come out warning against falling rents and property values. With the FDIC stating on 09/29/09 that is was actually negative in their deposit insurance fund will not bode well for this recovery everyone is hoping for.
Goldman Sachs states in this Reuters article that “prices have yet to stabilize”. They also state the construction loans are still their biggest concern. In Seattle I have seen many projects that secured financing during the bubble that are now in foreclosure and are actually advertising auctions they are hosting to try and sell this real estate. Something will have to be done or this recovery is unlikely to be real and the risk for a “double-dip” recession increases.
Reuters, New York – Goldman Sachs on Tuesday advised investors to shy away from banks and insurance companies that are heavily focused on commercial real estate, saying that the downturn in commercial real estate was more severe than Goldman had expected.
“Prices have yet to stabilize and thus are likely to overshoot our original estimates further,” Goldman analysts said in a report. Appraisal values have fallen 25 percent. Goldman expects a decline from peak levels in 2007 of 40 percent to 42 percent, a much steeper declined than the 28 percent it expected.
Sales prices have plunged 39 percent from their peak prices verses Goldman’s prior estimate 24 percent.
At the same time, vacancy rates have risen 35 percent versus the 17 percent Goldman had expected. Rents have fallen by 9 percent, translating into fundamentals that have deteriorated by more than twice the rate Goldman anticipated.
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