Worsening conditions in commercial real estate is a big problem.
By Alex Mai at 15 July, 2009, 10:15 am
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“July 9 (Bloomberg) — The $3.5 trillion commercial real estate market is a ticking “time bomb” that may lead to a second wave of losses at large U.S. banks, congressional Joint Economic Committee Chairwoman Carolyn Maloney said.”
There is currently about $3.5 trillion of debt associated with commercial real estate, about half of which is on the books of banks. Many credit unions and corporations have a lot of exposure on commercial real estate. From GS latest earning report, many commercial property related debts are expected to be default. There are lots of commercial property losses ahead, especially in shopping centers and offices.
The residential, commercial real estate account for $17.5T in market value, so far CRE only drop 14% and banks are expected it to drop 35%-45% from the peak through 2012.
Commercial real estate isn’t just a “drag on banks” - it is the FINAL NAIL IN THE COFFIN FOR BANKS as commercial real estates enters a total state of collapse all around the country.
Capital adequacy is VERY LOW,and an upward change in interest rates that is abrupt would devastate many additional banks through interest rate losses. This is also one of reason the Fed wouldn’t want to raise the interest rate so early.
The apartment vacancy rate is presently the highest it has ever been since records began being kept.
100,000 new apartments are being constructed and will be finished before the end of 2009.
There will be much blood in the waters.
June 22 , 2009 update: The latest results of the Moodys/REAL CPPI show a return of negative 8.6% in April for the all properties national index.
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