Commercial Real Estate's
Coming $1.4 Trillion Crisis
By: Lita Epstein, Lingling Wei and Jennifer Liberto
The economic crisis is growing
– despite the best efforts by America's mainline press to
cover-over the severity of what's been happening. So far,
the government has been able to hide the worst affects of
the economic downturn, at least insofar as those who have
not yet lost their jobs or who are now
"underemployed" and have been left "scratching" like a barnyard
chicken on barren ground for a living - about 20% of the
population. But when this crisis finally hits the COMMERCIAL
REAL ESTATE MARKET everyone will have to take note of what's
occurring because it will reach right down to the neighborhood
mall, the 20th and 21st centuries
equivalent of "Main Street USA" where people go to meet
other people and relax; but all they will find is empty
parking lots and vacant stores.
Lita Epstein, an expert in commercial real estate,
"In a report released Thursday, the Congressional Oversight Panel sounded
the alarm bell about a potential crisis involving $1.4 trillion in commercial
real estate loans that will come due between now and 2014. The panel warns
that this new real estate crisis will have a devastating impact on LOCAL
COMMUNITIES AND SMALL BUSINESSES which is precisely where 'rubber meets
the road' insofar as most Americans are concerned.
"It is feared that when these loans come due, companies will be unable to
repay or refinance them because of deteriorating conditions in the commercial
real estate market. Most of these loans were made at the top of the real estate
bubble in 2007 AND HAVE LOST AS MUCH AS 40% OF THEIR VALUE. Nearly
half are underwater -- the properties are worth less than the balance of their
"The panel's warning shouldn't come as a surprise. As early as May 2009,
ANALYSTIS WARNED THAT FAILURES OF COMMERCIAL REAL ESTATE LOANS COULD MEAN
TROUBLE FOR HUNDREDS AND HUNDREDS OF SMALL BANKS, WITH THE POTENTIAL FOR A
HUGE NUMBER OF BANK CLOSURES IN THE NEXT FIVE YEARS."
Lingling Wei of the Wall Street Journal
reports on the impact all this could have on "Main Street USA:"
"In contrast to home loans – the majority of which were made by only 10 or
so giant institutions – thousands of small and regional banks loaded up on
commercial property debt. As a result, commercial real estate troubles would
be even more widespread among the financial system than the housing woes.
At the present, more than 3,000 banks and savings institutions have more than
300% of their risk-based capital in commercial real-estate loans."
Expanding on what Epstein and Wei had to say,
Jennifer Liberto of CNNMONEY.com writes:
"The expected losses when these loans go bad could THREATEN AS MANY AS
3,000 SMALL AND MID-SIZE BANKS with a disproportionate share of commercial
real estate assets on their books, according to the panel.
"The report is intended to 'wave a red flag' to the White House and Congress
that the commercial real estate loan market is going to get a lot worse ...
"The panel's research found that 2,988 banks are heavily invested -- with
more than three times their assets tied up -- in commercial real estate loans.
Of that number, 2,500 banks each have less than $1 billion in assets.
"Indeed, many such smaller banks have already failed. Small bank failures
'will intensify sharply over the next few years', Warren said."
A sign of things to come: An empty Mall
Warren writes that when these commercial properties
fail, it will create a downward spiral of economic contraction, job losses and
deteriorating store fronts, office buildings and apartments. This will lead
to the failure of banks serving those communities. And since local banks play
a critical role in financing the small businesses that create a large percentage
of the U.S. economy's new jobs, their widespread failure could disrupt communities
and undermine the economic recovery.
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