Posted on 02/11/2010 2:16:39 PM PST by Steelfish
Desolate Malls, Empty Offices May Come Soon Report: Defaults on commercial real estate loans a looming economic crisis
Feb. 11, 2010 WASHINGTON - Over the next several years, failed commercial real estate loans could litter American cities with empty stores and office complexes, cause hundreds of bank failures and weaken the economy, a watchdog report says.
Banks face up to $300 billion in losses on loans made for commercial property and development, according to a report released Thursday by the Congressional Oversight Panel. The panel monitors the government's efforts to stabilize the financial system.
The report says the defaults could lead to reduced lending and cause the eviction of families from rental properties. Bank failures also could contribute to job losses and hurt the economic recovery.
Smaller banks are more vulnerable to the losses than their larger Wall Street counterparts. That's because commercial real estate makes up a larger portion of their portfolio.
The Federal Deposit Insurance Corp., which manages bank failures and insures deposits, is under stress that will intensify over the next few years, panel chairwoman Elizabeth Warren said in a call with reporters.
Small- and mid-size banks have been failing at the fastest rate since the savings and loan crisis of the 1980s and 1990s. The failures are due mostly to bad loans they made for commercial projects.
(Excerpt) Read more at msnbc.msn.com ...
“Banks face up to $300 billion in losses”
No, banks face no losses, it’s the taxpayers who will be stuck with the $300B cost when the government bails them out. There is no longer any risks to banks.
Hope & Change. Americans elected a Kenyan islamo-marxist and the Chicago thugs.
What did they expect? That business would just swamp America and then investments would come pouring in with Zero and his thugs in control?
I know a fair number of prominent commercial real estate “moguls” in this region.....and the ones I happen to know are good, Christian businessmen who have done VERY well over the years.
Now....most of them are looking at losing EVERYthing. I’m not being sarcastic in the slightest when I say my heart breaks for them. Imagine doing everything ‘right’, building up multi-million dollar fortunes, only to watch it all disappear due to the idiocy of the Progressive morons in Washington, DC (with help from their moronic counterparts in the State Capitol) and their insane policies.
NO. Not at all.
Desolate Malls, Empty Offices Preceded the problem because many more were built than there were businesses to fill even at the highest our economy has reached. The same is true with the McMansion developments, which made this whole collapse easy to see and predict.
Exactly!
Will someone tell msnbc that this is really old news. The mall here on Humboldt Bay has been operating under bankruptcy for almost a year (general growth)
Already seeing the empty storefronts around here and in some strip malls and small local centers...
The charge off rate on commercial property loans at all banks comes to 2.52% of their commercial property loan book per year. Anybody think they charge less than that?
Really?
Developers, who have prospered greatly for many years, are suddenly going to the poor house?
If they are stupid enough to invest EVERYTHING they have in a project, they deserve what they get.
Prudence demands one only invests what one can afford to lose. Doing otherwise endangers ones family, greed consumes all near these people.
Do not lament their situation, it was self inflicted.
This is already well under way. The properties in the most danger are those built at the end of the cycle that haven’t yet leased up. Smart banks are restructuring these loans (and taking losses in the process) so that current cash flows can service the loans.
This is old news in Nevada, and you’re seeing lots of community bank failures because of it. This won’t have near the impact as did the housing bust and in many markets has been going on for months.
I feel sorry for your friends getting clobbered in the CRE market. I sold my (very humble yet owned free and clear) CRE in 2006 (and made almost 15 times my original investment) because even I can tell when a bubble’s getting ready to burst.
One question: Do your investor friends feel that the CRE market was starting to tank even before the 2008 election?
Man O’live.. when dems tank an economy, they do it up big time.
To be honest, many of these folks who got rich in the boom years were in the right place at the right time and somehow thought they were suddenly experts in commercial real estate development. Many of them kept leveraging into the “next deal,” and when the music stopped they got burned.
But you’re right, many former Real Estate Moguls are now broke. It’s always been a regional boom-and-bust game, but this time the phenomenon was nationwide.
That’s more than a tad harsh. They are honorable men; they utilized proper and solid business practices/procedures. They did their homework. They know their business and did it well.
If they can be criticized for anything, I can only suppose it was not foreseeing the devastation the Progressive agenda, writ large with the election of the idiot Obama, would wreak on the overall U.S. economy.
We can only control what we can control. Should they have been more prescient and ‘gotten out’ while the gettin’ was good? Of course....maybe your crystal ball is better than theirs.
Well, fortunately there’s much more to life than money and business success. :)
“Rates on loans cover loan losses.”
Rates on loans at the time the loan was made covered expected losses. This will be much worse than anyone anticipated. Again, don’t worry, the printing press is fired up and all will be well.
Oh I absolutely agree... that’s what I was wondering about the other poster’s whose friends had CRE investments.
Several years ago I read Kevin Phillips’ trilogy on politics and money. Those books really rattled my brain! Phillips focuses on macroeconomics and is by no means a personal financial advisor, but I took away several important points.
I sold the CRE property I had (at a nice profit). I heavily weighted my portfolio to cash and cash-substitutes because I knew with all those sliced-and-diced CDOs, the banks, shadow banks, and Wall Street financials were going to implode at some point.
And all this was long before I ever first head the name Barack Obama.
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