Commercial property markets are beginning to show real weakness. Delinquency rates have doubled to almost 7% and the bottom isnt expected for another three years.
It no surprise that with the loss of jobs there is a great deal of downsizing and rent reduction for everyone from retail shopping malls and small business to hotels and offices. Unemployment is now 9.5%, pushing commercial vacancy rates to 17%.
The Globe and Mail reports Real estate experts and regulators warned a U.S. congressional committee that commercial real estate is headed for a crash that could eclipse slump of the early 1990s, saddling already hobbled banks with a new wave of bad loans.
Big Debts Due
Almost $1.8-trillion of commercial loans made during good times will roll over by 2012. The banks are certainly reluctant to take on more high risk property. The Fed certainly doesnt want the banks to assume more risk at this juncture.
Office towers and shopping centers are already down 35 to 45 per cent since 2007. That compares with a 32 per cent peak-to-trough decline for house prices, according to the Case-Shiller home price index.
TALFThe commercial real state crises is not only important for banks, which hold almost 2 trillion dollars of commercial loans. The commercial real estate industry also provides more than 9 million jobs and generates roughly 70 cents out of every dollar in local government budgets.
The Obama administration has a $1-trillion Term Asset-Backed Securities Loan Facility (TALF) program in place.
Because there is no secondary market for commercial mortgages, TALF will inject big dollars into a non existent market to provide liquidity abd encourage lenders and investors to participate commercial real estate loans.
TALF is expected help unfreeze credit markets that limited refinancings billions in commercial real estate debt that resulted in a wave of defaults.
At the core this is a crises caused by a credit collapse.....
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