Tuesday, September 8, 2009

Impending Commercial Foreclosures, Loan Modifications and Short Sales: Mortgage Meltdown in Commercial Real Estate Market

We’ve heard stories about the mortgage meltdown in the residential real estate market, but the new time-bomb-under-the-seat, the impending default on commercial loans, is just revving its engines.

Banks will soon be hit with the double-whammy of defaults on commercial properties, not just on home loans.

These days, the people who buy and sell office buildings, shopping centers, warehouses, apartment buildings and hotels are hardly in a festive mood, despite some recent encouraging signs relating to the job and housing markets and a recent increase in sales of small office buildings.

Even though industry lobbyists were able to persuade Congress to extend a loan program aimed at prodding the stalled securitization market back to life, several analysts said it was unlikely to head off a spate of defaults, foreclosures and bankruptcies that could surpass the devastating real estate crash of the early 1990s.

The distress is still in its early stages, analysts said. “We are between the first and second inning,” said Richard Parkus, who directs research on commercial mortgage-backed securities for Deutsche Bank. “We’re going to have to get through a very difficult period.”

Building values have declined by as much as 50 percent around the country, and even more in Manhattan, where prices soared the highest. As many as 65 percent of commercial mortgages maturing over the next few years are unlikely to qualify for refinancing because of the drop in values and new stricter underwriting standards, he said. [New York Times]
Look for the White House's “Making Buildings Affordable” plan coming soon.