How A Government Bailout Created Today’s Commercial Real Estate Crisis
Editor’s Note: This is a piece that covers a decent span of time and shows some of the events and regulations or deregulation that took place to create the current situation in the U.S. commercial property market. A majority of the bank failures in 2009 had to do with overexposure to commercial loans connected to real estate.
Business Insider - In a pattern familiar from the housing crisis, the value of commercial real estate has been plunging while the volume of distressed commercial real-estate loans is rapidly rising.
Commercial real estate to drive more U.S. bank failures
Editor’s Note: The drumbeat is getting louder for commercial real estate being the next leg down. If you have followed this site since it went online, it said been repeated over and over again. Many local and regional commercial banks are taking huge losses on their commercial loan portfolio because of defaults on behalf of borrowers.
Vacancies are rising and many of these loans were written at a very high valuation making any lose of tenets a larger than normal increase to the risk of default. I still firmly believe some program will have to be put into place to try and curb this situation or it will drag down on our already fragile recovery.
Reuters, New York - The next big headache for banks is likely to be commercial real estate and analysts expect big losses and another wave of bank failures to result.
Banks held about $1.7 trillion in commercial real estate loans at the end of September, according to Federal Reserve data, or about 15 percent of their total assets. But to the extent these loans weaken, small banks are likely to be hit the hardest because larger banks are better diversified.
Apollo Commercial Real Estate Shares Fall on IPO Debut
AP, New York - Shares of Apollo Commercial Real Estate Finance Inc. fell more than 5 percent in midday trading on the stock’s debut in an initial public offering Thursday.
The real estate investment trust and its underwriters set the IPO price at $20 a share. By midday, the shares lost $1.14, or 5.7 percent, to $18.86. They traded as high as $19.20 earlier.
Commercial real estate sales forecasted to be worst in almost 20 years
Editor’s Note: I’ll just take a quote from the article that sums up my opinion to this point on the commercial property market. It is from Dan Fasulo with Real Estate Econometrics, “There’s no real way to sugarcoat it,” Fasulo said in an interview. “A slowdown of this magnitude certainly hasn’t occurred since I’ve been in the business.” Personally I have a few friends in the commercial industry and they are all seeing numbers way off from even last year. Maybe we are seeing a recovery but for that to be confirmed, the jobless numbers need to come way down so that we can be confident that business are adding employees and hence more commercial space.
Bloomberg, New York - Commercial-property sales in the U.S. this year are forecast to fall to the lowest in almost two decades as the industry endures its worst slump since the savings and loan crisis of the early 1990s.
Increasing Commercial Real Estate Crisis Hits U.S. Banks
Wall St. Journal, New York – When commercial real estate markets went bust two decades ago, bankers said they learned a hard lesson. The latest earnings reports from U.S. banks suggest many, in fact, didn’t.
Losses from loans tied to strip malls, office buildings, housing complexes, and the like are hurtling toward record levels not seen since the infamous savings-and-loan crisis.
Federal Reserve says commercial real estate may pose risk for U.S. economy
Editor’s Note: Looks like the prediction is correct and U.S. lawmakers are inquiring and most likely drafting up programs to assist with the decline commercial property market. When residential real estate prices where declining rapidly in 2007, I knew the next shoe to drop would be the commercial market.
With all the securities that were created and sold during that time, money was cheap and we witness major construction and renovations in the U.S. happened at a pace that was not sustainable for the long term. Not sure about you, but in Seattle, we are seeing many “for lease” signs on commercial spaces. Most of these projects were underwritten during the bubble so their income projections were very generous to say the least. We will be following this story closely to get the details out as soon as they are made available or we find them first.
News (Bloomberg):
Federal Reserve Chairman Ben S. Bernanke said a potential wave of defaults in commercial real estate may present a “difficult” challenge for the economy, without committing to additional steps to aid the market.
U.S. commercial property price drop may signal bottom?
Editor’s Note: 34.8% drop quite a decline since 2007. The biggest item that needs to be looked at is the financing that will be available as more of these 25 year amortorized mortgages that are due in 10 years that will be hitting the market to refinance. If that is not available along with investors taking serious hits in the markets, there might not be the credit and money available to get these notes taken care of. In that case then we will see more defaults and further price declines.
News (Reuters):
U.S. commercial property prices plunged for a second straight month in May as distressed transactions weighed, but the pace of decline may signal a bottoming process, Moody’s Investors Service said on Monday.