“So many of those assets were acquired at top dollar,” said Susan Smith, director of the real estate group at Pricewaterhouse Coopers. But even if that happens, it’s not clear how long it will be before these properties regain their lost value. If companies begin hiring again, empty space in office buildings will begin to fill up, shuttered stores in malls will reopen and hotel owners will see occupancy rates rise. “There was a lot underwritten during (the boom) there’s just too much to refinance, and the values have gone down too significantly."Ī lot depends on how well the economy recovers in the next several years. ‘I don’t think the banks can hold out that long,” said Lesley Deutch, who follows the commercial real estate market for John Burns Real Estate Consulting. But it remains to be seen whether that strategy will work. It also could force bankers to try to offset commercial loan losses by accelerating sales of foreclosed homes, which could put further pressure on home prices.Īs long as the commercial property owner is making payments, bankers are willing to delay refinancing for a few years in hopes that the economy and real estate market improve. The risk for consumers is that heavy losses on commercial real estate could force banks to tighten lending for home mortgages, car loans and credit cards even further. These roughly 6,500 banks represent some 90 percent of all U.S. Some 74 percent of all loans held by smaller banks are secured by commercial real estate. For smaller banks with assets under $1 billion the concentration is even higher. banks’ loan portfolios up from 40 percent a decade earlier, according to FDIC data. In 2006, commercial real estate made up 56 percent of U.S. “With short maturities you’ve squeezed the accordion as close as you can get and caused a lot more refinancing in a short period of time.”Ĭommercial real estate became hugely popular with bankers during the boom. “There was this unbelievable bout of lending that occurred all on a very short term,” said Tishman. Many of the loans were written at the height of the boom. Unlike home mortgages that run for 15 or 30 years, much of the roughly $1.6 trillion in commercial real estate loans outstanding involves much shorter terms of three to seven years. Though the market is only about a third the size of the $22 trillion residential market, in some ways the problem for commercial real estate is more severe.
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