Sean King

My photo
Knoxville, Tennessee, United States

Monday, March 15, 2010

Ticking Time Bomb?

“Between 2010 and 2014, about $1.4 trillion in commercial real estate loans will reach the end of their terms. Nearly half are at present “underwater” – that is, the borrower owes more than the underlying property is currently worth. Commercial property values have fallen more than 40 percent since the beginning of 2007. Increased vacancy rates, which now range from eight percent for multifamily housing to 18 percent for office buildings, and falling rents, which have declined 40 percent for office space and 33 percent for retail space, have exerted a powerful downward pressure on the value of commercial properties.

“The largest commercial real estate loan losses are projected for 2011 and beyond; losses at banks alone could range as high as $200-$300 billion. The stress tests conducted last year for 19 major financial institutions examined their capital reserves only through the end of 2010. Even more significantly, small and mid-sized banks were never subjected to any exercise comparable to the stress tests, despite the fact that small and mid-sized banks are proportionately even more exposed than their larger counterparts to commercial real estate loan losses.”

The above quotation is from the February 10, 2010 Congressional Oversight Panel’s Special Report entitled “Commercial Real Estate Losses and the Risk to Financial Stability.” The full report is available here.

Increasingly the media is suggesting that the worst of the financial crisis is behind us. But based on original source material such as the above, I'm not so sure.

No comments: