Wednesday, December 30, 2009
American Banker article summarized by Troy Corman, t2realestate.com
Banks will face major problems with commercial real estate in 2010. For many community and regional banks, it will be their biggest headache. Many talking heads are usually referring to CMBS, or commercial mortgage-backed securities when discussing commercial real estate. But many local and regional banks hold whole loans on their books. Most of these loans have short maturities of around 3 to 5 years. And many were financed during the boom. As many commercial assets must refinance out of those loans in the next few years, the problem is that the underlying real estate has declined in value so much that it is now under water. And it's getting worse every day. Each quarter, non-performing loans and commercial mortgage delinquencies are rising.
There is nearly $40 Billion in problem commercial real estate loans but only $5.8 Billion in commercial REO, or properties banks have seized through foreclosure. Unfortunately, the problems are accelerating.
Sooner or later, someone is going to have to pay the piper, and let's hope it's not the American taxpayer again. For those with access to capital and real estate investing expertise, the next few years will mark a golden opportunity.