For months now we keep hearing about this impending train wreck in the commercial real estate market. According to a story at CNN.com, however, banks have already recognized about 50% of their potential losses, meaning this is a train wreck that's already in motion -- albeit quietly. From the story:
Banks have already recognized about $50 billion in losses, or about 60% of the estimated cumulative losses, according to real estate research firm Foresight Analytics.
And despite a steep drop in the price of apartments, office buildings and industrial properties nationwide over the past year, there have been recent indicators to suggest that the market may have finally hit bottom.
After 13 months of consecutive declines, overall commercial property values climbed 1%, according to the most recent monthly reading by Moody's/REAL Commercial Property Price Index...
Unfortunately, the consensus is that neither prices nor occupancy rates will improve anytime soon.
Estimates published last November by the Urban Land Institute and PricewaterhouseCoopers suggest that commercial real estate vacancies will continue to increase in 2010, while prices could tumble further during the year. Prices could fall as low as half their peak levels from 2007.
If that happens, that would only darken borrowers' hopes that banks will refinance their outstanding loans. And some $1.4 trillion is commercial real estate debt is expected to come due over the next three years.
Matt Anderson, partner at Foresight Analytics, said that can mean only one thing for banks: more losses...
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