The Next Big Thing: Commercial Loan Defaults

A Bloomberg article yesterday claimed commercial loan defaults may triple as rental incomes decline. The source article seems to have gone missing, but here is an excerpt:

Dec. 22 (Bloomberg) — U.S. commercial properties at risk of default could triple if rental income from office, retail and apartment buildings drops by even 5 percent, a likely possibility given the recession, according to research by New York-based real estate analysts at Reis Inc.

Lenders that used optimistic rent estimates to grant mortgages beginning in 2005 stand to lose as much as $23.1 billion, or 7.02 percent, of total unpaid balances if landlords lose 5 percent of net operating income, according to Reis. Analysts examined data on 22,890 properties that together may account for unpaid loans of about $329 billion in 2009, said Victor Calanog, director of research.

Banks are at risk as office vacancies are forecast to rise to 15.6 percent next year from an estimated 14.6 percent at the end of 2008. Lenders who sold commercial mortgage-backed securities to pension funds, investment banks and foreign governments have been hit by more than $1 trillion in losses and asset writedowns connected to bad residential loans.

Bloomberg also reported yesterday that the looming crisis in commercial loans had a big impact on MetLife and Prudential stocks:

Dec. 22 (Bloomberg) —  Metlife Inc. and Prudential Financial Inc., the largest U.S. life insurers, declined in New York trading on concern that losses on commercial mortgages will surge as the recession deepens.  Continues…

So, not to be last to arrive at the great D.C. bailout party, The Wall Street Journal reports that some of the nation’s biggest property developers are already getting in line for their handout.

With a record amount of commercial real-estate debt coming due, some of the country’s biggest property developers have become the latest to go hat-in-hand to the government for assistance.

They’re warning policymakers that thousands of office complexes, hotels, shopping centers and other commercial buildings are headed into defaults, foreclosures and bankruptcies. The reason: according to research firm Foresight Analytics LCC, $530 billion of commercial mortgages will be coming due for refinancing in the next three years — with about $160 billion maturing in the next year. Credit, meanwhile, is practically nonexistent and cash flows from commercial property are siphoning off.

Continue reading…

Will the developers and real estate industry get a bailout? What a silly question.

Top All-Time Donors 1989-2008 Summary

  1. AT&T Inc $40,624,392 
  2. American Fedn of State, County & Municipal Employees $40,430,870 
  3. National Assn of Realtors $34,487,078 
  4. Goldman Sachs $30,350,777 
  5. American Assn for Justice $29,920,189    
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One Comment on “The Next Big Thing: Commercial Loan Defaults”

  1. […] news by unknown « CRE Industry Seeks U.S. Bailout Funds – CoStar […]

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