3 signs of the next real estate collapse

CNN Money(Fortune) ^ | 10/22/09 | Katie Benner

[TigerLikesRooster]

3 signs of the next real estate collapse

The latest bubble is about to burst, but this time it's in the commercial market. Here's how to see it coming.

By Katie Benner, writer-reporter

October 22, 2009: 10:16 AM ET

NEW YORK (Fortune) -- When the FDIC closed Chicago's Corus Bank last month, it may have signaled the beginning of the next shock to the banking system: commercial real estate defaults.

Corus, whose balance sheet was larded with bad construction loans, is just one of many banks that have a slew of this debt on their books. Refinancing the $2 trillion in commercial mortgages will be tough, as property values decline. And in this new age of cautious lending, few banks are willing to refinance loans.

"There is a lack of new debt," says Michael Haas, a real estate attorney at Jones Day. "There is a hesitancy to extend credit when there is a real possibility that the real estate may be worth less than it was a few years ago."

/snip

1. Special Servicers

/snip

2. Big Projects

/snip

3. Regional Banks

[TigerLikesRooster]

Ping!

[Jeff Chandler]

Bush’s Fault.

[DeaconRed]

Not to Worry! ! ! !
ZERO knows where they print money. That was the first place he found on January 22.
He will take care of the problem.. Remember Too Big To Fail? Well most of the commercial banks are too big to fail, so Mr. Zero will just pump more of our money to them until they cry Uncle.
Wait, what am I saying?. . . . wow its true I was just trying to be funny, but I realized I am speaking the truth. . . . .

[Alberta's Child]

It's worth noting that there is a huge difference between commercial and residential mortgages. Commercial mortgages carry an inherent level of risk because it's much easier for the borrower to just pack up and default without leaving any value behind for the lender. In other words, residential real estate will always have some degree of value because people will always need a place to live. But they won't always need as many places to shop, do business, etc. in down times.

This is why you can get a 30-year fixed rate for a residential mortgage, but very few (if any) banks will extend a commercial loan for a term of more than five years.

[happygrl]

This is a No Brainer.

EVERYTHING is over-valued with respect to any kind of income, whether personal or business. This is what was called The Great Reckoning, in a book by that title a few years ago.