Tuesday, September 01, 2009

New mortgage crisis coming?

WSJ: Commercial real estate could knock out the recovering economy:
Federal Reserve and Treasury officials are scrambling to prevent the commercial-real-estate sector from delivering a roundhouse punch to the U.S. economy just as it struggles to get up off the mat.

Their efforts could be undermined by a surge in foreclosures of commercial property carrying mortgages that were packaged and sold by Wall Street as bonds. ... The $700 billion of commercial-mortgage-backed securities outstanding are being tested for the first time by a massive downturn, and the outcome so far hasn't been pretty.

The CMBS sector is suffering two kinds of pain.... In the era of looser credit, Wall Street's CMBS machine lent owners money on the assumption that occupancy and rents of their office buildings, hotels, stores or other commercial property would keep rising. In fact, the opposite has happened. The result is that a growing number of properties aren't generating enough cash to make principal and interest payments.

The other kind of hurt is coming from the inability of property owners to refinance loans bundled into CMBS when these loans mature. By the end of 2012, some $153 billion in loans that make up CMBS are coming due, and close to $100 billion of that will face difficulty getting refinanced, according to Deutsche Bank. Even though the cash flows of these properties are enough to pay interest and principal on the debt, their values have fallen so far that borrowers won't be able to extend existing mortgages or replace them with new debt. ...

CMBS, of course, aren't the only kind of commercial-real-estate debt suffering higher defaults. Banks hold $1.7 trillion of commercial mortgages and construction loans, and delinquencies on this debt already have played a role in the increase in bank failures this year. But banks' losses from commercial mortgages have the potential to mount sharply, and the high foreclosure rate in the CMBS market could play a role in this. ...

Mounting foreclosures in the CMBS sector would likely depress values even further as property is dumped on the market.


  1. I agree with this post and have seen it first hand, as a family member of mine in a nice business district has been sitting on two commercial properties for almost two years without an offer to rent OR buy. I think the general public thinks commercial and thinks "big banks" or "big companies" but in reality there are many small business owners owning commercial real estate that can't make endless amounts of mortgage payments.

  2. Oh - but I thought everything was just rosy according to all the sucker optimists here. Its time to go out and buy property now.


  3. You like to quote Warren Buffett, he is the one who said that the only people who make money are the ones doing the opposite of everyone else. So the question is, is everyone else feeling negative about the housing bubble like you? Seems like that has caught on pretty solid by now. I was saying the bubble would burst back in 2003 and I was a little early, but I made money selling when everyone was buying.

    Now that everyone is losing money and selling, I think it may be time to buy again.

  4. What d'ya know, Tony in Hawaii is a Realtor!

  5. I cant wait until the gov focuses on stimulating things like this instead of homes, so that the home prices can come down to more affordable levels.

  6. if all of you insist on not creating an account and posting anonymously, can you at least put a name in the body of the post so its easier to keep track of who's saying what?

  7. Why do you want to keep track? This thread only had two anonymous posts anyway....whats the bid deal


  8. its not just this thread its all the threads. And i want to keep track because it makes following back and forth discussions easier. You can follow each person's line of reasoning instead of confusing the comments of all the anons.

  9. Now is the time to buy property, prices are low.

    Finance if you can get it is at a low rate.

    A lot of people in England are buying to let property, also buying and renovation market has picked up also helping the building industry.