Thursday, December 20, 2007

Wall Street's Next Crisis - Commerical Real Estate

So far, the current credit crisis has zeroed in on mortgages for the less affluent. But easy credit was a sprawling millipede whose wobbly legs reached into the farthest corners of the financial markets. This is the year the other 999 shoes start to drop.

Any loan to any borrower can begin to seem subprime if there's too little down and too much debt. And that, unfortunately, brings us to the commercial-real-estate market.

For the past several years, the market for commercial property—offices, malls, apartment buildings, industrial plants, warehouses, and the like—has enjoyed the very best of times. Prices soared, and lenders lent readily. Owners had no problem meeting their payments. By early 2007, delinquencies had fallen to record lows.

In their own way, however, commercial-real-estate loans were no less foolish than those made to home buyers with speckled credit. And as with the subprime mess, the reckoning will come. Just like what happened in other sectors already hit by the credit crunch, these loans will cause problems that will probably find their way beyond the obvious players in the commercial-real-estate market. Judging by the aspects of the credit crisis we've already seen, commercial-real-estate trouble will probably emerge sooner than people expect—and will be worse than they anticipate.

The implosion is going to be a refreshingly simple and familiar story. The commercial-real-estate frenzy has none of the nagging complications found in the residential market. There aren't any targets of predatory lending. There are no huge failures by government regulators. The aftermath won't see people thrown out of their homes—an unadulterated societal ill regardless of whether they should have known better or were tricked into taking on loans they couldn't afford.


Tyrone said...

Commercial Real Estate getting some attention...

Housing Trouble Spills Over into Commercial Real Estate

Adam said...

Thanks for the links, guys.

You guys don't suppose all those vacancy signs, popping up like mushrooms around town in the windows of commercial/retail buildings have ANYTHING to do with the housing correction, do you? :)

FWIW, tyrone's link lead me to articles written by Rich Toscano, a San Diego author who writes about the current housing situation. Worth a read, as the guy backs up his articles with graphs, etc.

(Here's the tinyurl version, if it gets clipped off:)

Bakersfield Bubble said...

Thanks for the links guys!

murrells Inlet rentals said...

i think development real estate is in shambles right now