CRE issues lurking just over the horizion...

Posted by Expert Gadget Reviewer on Tuesday, 2 February 2010

My East Bay neighbors, Foresight Analytics, appear bound and determined to stomp on my "rose-colored" outlook regarding the long-term state of the Commercial Real Estate industry. An article posted on , featured Forsight's most recent report, which noted that between 2010 and 2014, $770 billion in commercial loans will be on properties in negative equity.

According to the article, the good news, is that only 36% of the $270 billion set to mature in 2010 will be underwater. The bad news is that the percentages accelerate to a peak in 2012 at 63%. The really bad news is that a large amount of these loans will need to be written down by the banks who hold the loans, which will pose a significant (some say systemic) risk, for both community banks and larger commercial banks.

I am a big believer in letting the markets take care of themselves. Foreclosures cleanse the system, allowing new ownership to invest capital and make deals (which in turn means office furniture sales). Having said that, I don't think allowing a catastrophic situation where credit locks up is acceptable. It appears that Washington is aware of the pending issue, lets hope that the Red State/Blue State bunch can work together for once to create some reasonable "work-out" process.