Even as banks grapple with rising foreclosures, many lenders have something else to worry about: A rising tide of potential losses from commercial real estate loans that could reach into the biDelinquency rates and defaults on office and retail buildings and hotels have more than doubled in just six months.
For apartments and industrial buildings, the rates have increased more than 80 percent, according to Reis Inc.
While homeowners are defaulting at almost four times the rate of commercial landlords, the sudden spike in late payments has many industry insiders worried about the collateral threat to the economy and financial system.
Nearly $73 billion worth of commercial real estate loans are in some level of financial distress, said Real Capital Analytics.
The risk to the economy is unknown, but likely underestimated in the government’s stress test of 19 major banks. The results released last week projected that should the recession worsen, the losses from commercial real estate loans could hit $53 billion, or 8.5 percent of their overall loan losses over the next two years.
The exercise notably left out the majority of the regional and local lenders, which hold a big chunk of the nation’s $3.5 trillion commercial property loans on their books and remain vulnerable.
"Because of the severity of the economic downturn, now the pressure … for commercial real estate, is much higher,” said Hessam Nadji, managing director at Marcus & Millichap Real Estate Investment Services.
Forced changes
The economy has forced many businesses to downsize and others like Linens ‘N Things and Circuit City to go out of business. That’s left behind empty storefronts, office buildings and warehouse space.
Landlords are finding it hard to attract new tenants. Increasingly, they are slashing rents or offering incentives like money for tenant renovation. Tenants, likewise, have also become more aggressive about demanding concessions from landlords.
Starbucks, for example, recently pressed its landlords to renegotiate the rents for leases at company operated stores. The coffee chain declined
While interest rates have declined, commercial property owners are having difficulty refinancing their loans because credit markets remain frozen.
And that’s what is worrying people like Kyle McLaughlin.
Overall, some $270.5 billion commercial property loans are expected to come due this year alone, said McLaughlin, a financial analyst for Reis.
by the associated press
For apartments and industrial buildings, the rates have increased more than 80 percent, according to Reis Inc.
While homeowners are defaulting at almost four times the rate of commercial landlords, the sudden spike in late payments has many industry insiders worried about the collateral threat to the economy and financial system.
Nearly $73 billion worth of commercial real estate loans are in some level of financial distress, said Real Capital Analytics.
The risk to the economy is unknown, but likely underestimated in the government’s stress test of 19 major banks. The results released last week projected that should the recession worsen, the losses from commercial real estate loans could hit $53 billion, or 8.5 percent of their overall loan losses over the next two years.
The exercise notably left out the majority of the regional and local lenders, which hold a big chunk of the nation’s $3.5 trillion commercial property loans on their books and remain vulnerable.
"Because of the severity of the economic downturn, now the pressure … for commercial real estate, is much higher,” said Hessam Nadji, managing director at Marcus & Millichap Real Estate Investment Services.
Forced changes
The economy has forced many businesses to downsize and others like Linens ‘N Things and Circuit City to go out of business. That’s left behind empty storefronts, office buildings and warehouse space.
Landlords are finding it hard to attract new tenants. Increasingly, they are slashing rents or offering incentives like money for tenant renovation. Tenants, likewise, have also become more aggressive about demanding concessions from landlords.
Starbucks, for example, recently pressed its landlords to renegotiate the rents for leases at company operated stores. The coffee chain declined
While interest rates have declined, commercial property owners are having difficulty refinancing their loans because credit markets remain frozen.
And that’s what is worrying people like Kyle McLaughlin.
Overall, some $270.5 billion commercial property loans are expected to come due this year alone, said McLaughlin, a financial analyst for Reis.
by the associated press
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