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SpacePlace.net - Commercial Real Estate 2.0 Bailout News
SpacePlace.net ~ The Commercial Real Estate industry's definitive source for searching, listing and connecting to commercial real estate properties, professionals, and market information. A Bailout for Commercial Real Estate @ Yahoo! Video
The state of commercial real estate has become a growing concern for the economy. Martin Cohen, chairman and co-CEO of Cohen & Steers Capital Management, shares his outlook for the sector.
WASHINGTON -(Dow Jones)- Some lawmakers welcomed news Tuesday that 10 of the nation's largest banks are poised to repay billions of federal assistance but warned that a "ticking time bomb" in commercial real estate could deal a punishing blow to lenders and the economy. "I am very concerned about the ticking time bomb we face in commercial real estate lending," congressional Joint Economic Committee Chair Carolyn Maloney, D-N.Y. said at a hearing Tuesday. She noted that an estimated $400 billion of commercial real estate loans are coming due this year, with another $300 billion due in 2010.
If commercial real estate developers cannot refinance or pay off that debt, " we could expect to see the default rate on commercial mortgages climb much higher," Maloney warned. Maloney's comments came at a hearing into the $700 billion Troubled Asset Relief Program approved by Congress to help banks saddled with soured assets linked to risky home mortgage loans. Just before the hearing began, the U.S. Treasury Department announced that 10 recipients of so-called TARP funds will repay a total of $68 billion, which Maloney called "welcome news."
The hearing follows the release of a new Congressional Oversight Panel report on the TARP, which faulted recent "stress tests" of 19 large financial firms by the Treasury Department and the Federal Reserve, saying the economic assumptions probably were too rosy and that the projections only run through 2010.
"We simply are asking for more," Congressional Oversight Panel chair Elizabeth Warren told lawmakers. She recommended that the stress tests be run again, with tougher assumptions, and be continued as long as banks hold troubled assets.As a case in point, Warren noted that the U.S. unemployment rate projected for 2009 under the stress tests' "worst-case scenario" was 8.9%, but "we're now at 9.4%,"
"This is a real concern, the worst case scenario in 2009 is in fact not the worst case," said Warren, whose panel is monitoring the Treasury's spending of the bailout money. In addition, the oversight panel called for regulators to issue more information about the stress-test methodology, allowing outside analysts to replicate the tests themselves. -By Judith Burns, Dow Jones Newswires
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Commercial real estate may soon bulldoze the green shoots.
A coming wave of defaults on loans to developers of condominiums, office buildings and malls could do significant damage to the already deflating economy. That was the overwhelming concern expressed at a public hearing of the Congressional Oversight Panel on Thursday that focused on corporate and commercial real estate lending.
The COP was set up last fall as part of legislation that gave the Treasury Department permission to spend $700 billion to rescue the nation's ailing financial system. The panel, which is headed by Harvard Law professor Elizabeth Warren, has no legislative or official regulatory powers. It is supposed to monitor the Treasury's spending and report back to Congress as to whether it is being effective in boosting lending, and shoring up the financial sector.
Thursday's hearing was one of a number of public forums the COP is hosting on different segments of the lending market. Warren is often criticized for being too critical of banks and their lending practices. But at the hearing on commercial real estate Warren focused on how big a problem future loan defaults will be and what should be done about it.
She got an earful. Richard Parkus, an analyst at Deutsche Bank, said he thought two-thirds of all commercial real estate loans due in the next few years, hundreds of billions of dollars worth, could go bust. Jeffrey DeBoer, president of trade group The Real Estate Roundtable, fretted that problems in the lending business could cost the nation thousands more construction and real estate jobs. Next up, Congressman Jerrold Nadler of New York expressed worry that the country was headed for a lost decade of economic stagnation.
There were not a lot of solutions offered. Nadler said he thought the government should create new banks. Those banks, unencumbered by souring loans, would boost lending. Nadler said he thought private investors would be interested in helping to fund the new banks. A number of the panelists thought the government's TALF and PPIP programs meant to boost lending were helpful, but not the answer. Parkus said he thought extending terms of commercial loans set to default would only delay the problem and make it worse. As more and more bad loans pile up, he predicted, it will become progressively harder for any of them to get refinanced.
What was clear from the hearing is that commercial real estate could turn out to be a much bigger problem for banks and the economy than the Treasury Department, the Federal Reserve and other bank regulators seem to believe. "The question is what percentage of commercial real estate loans will have trouble refinancing," Parkus said at the COP hearing. "It is likely to be a big problem."
How big? In the government's recent bank stress test, examiners predicted that commercial real estate loan losses for the 19 largest banks in the nation would be far lower than the value of home loans that go unpaid in the next two years--$53 billion versus $185 billion. But Warren said she thought the two-year horizon of the government stress test may have understated the size of the banks' commercial real estate problem. The government assumed different default rates for each of the 19 banks for commercial real estate and other types of loans. Warren said the government had not given much information as to what determined the default rate used for each bank; she plans to release a report on the stress test in early June.
Parkus concurred that the stress tests probably went too light on potential losses. He expects that a little over a $1 trillion in commercial real estate loans will be up for refinancing in the next four years. Because of falling real estate prices and lower rental incomes, he said, as many as two-thirds of those loans may not be eligible for refinancing and could end in default.
Kevin Pearson, executive vice president of M&T Bank, said he thinks banks will be able to avoid many of those loan losses through loan modifications, or "through blocking and tackling," as he put it. Parkus, though, said that outlook was too positive. He countered that banks will have a very tough time refinancing the poor loans they made at the height of the credit bubble. "There are very large losses embedded in the system," said Parkus.
Commercial Real Estate — the Economy's Anvil By Stephen Gandel
Lately, there has been a wealth of information concerning the health and state of the Commercial Real Estate industry and the article posted today is no different, but at SpacePlace.net, we feel it is vitally important that our members are kept up to date with the most current information available. We promise not every post will be about the impending doom of CRE, but enlight of all the new information, we feel it is critical to our members to share what others around the country are saying. Check out the latest article below!
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Even if rents and vacancies don't totally collapse, the commercial real estate market may be in for violent upheaval, if only because there isn't enough available credit to deal with all the re-financings. The New York Post runs down some of the grim numbers: At the center of the worries is some $3.5 trillion in debt backed by everything from strip malls to offices and apartments across the nation -- the lion's share of which is badly underwater because this recession followed a five-year commercial property boom fueled by easy money and loose underwriting standards.
Now the owners of the less-than-full malls, apartment complexes and office buildings are succumbing to the worst economic collapse since the Great Depression -- because they can't refinance the debt. The commercial debt securitization market is dead. "Because there is no securitization the system cannot process the wave of maturities coming due," said Scott Latham, commercial property broker at Cushman & Wakefield.
"This is arguably the most important fact we're going to be dealing with. If there's no mortgage market that can feed the machine you're just not going to have deals," he said. "It's going to be years before we recover and even when that happens we're going to discover that we're in a new paradigm," Latham added.
About $1.4 trillion in real estate debt is set to mature over the next four years, with some $204 billion coming due this year alone. From what we've heard, it's impossible to overstate how stingy commercial real estate lenders have become. Even projects with very solid tenants and no indication of a drop-off are having a hard time rolling over their debt. Still, there's a difference between a homeowner going into foreclosure and a commercial real estate owner that still has paying tenants. Whoever receives the property will still be seeing cash flow, and there's a good chance it will have some value, rather than some house in the middle of nowhere, with no prospects of being sold, whose only realistic fate is a bulldozer. ~ By Joe Weisenthal of Clusterstock.
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What is the state of the Commercial Real Estate industry ? When will the industry begin to recover? What is the formula for success? Top executives discuss these issues. Check out the link below!
SpacePlace.net ~ The Commercial Real Estate industry's definative source for searching, listing and connecting to commercial real estate properties, professionals, and market information.
