Bankruptcy

Commercial Real Estate Defaults May Stress Big Banks

By J. Michael McBride

As all of the markets contract, some analysts are concerned about the impact of a looming number of commercial real estate defaults.

“Banks and other financial companies have not had the problems with commercial properties in this recession that they have had with residential properties. But many building owners, while struggling with more vacancies and less rental income, will need to refinance commercial mortgages in the coming year. The persistent chill in lending from banks to the credit markets will make that difficult - even for borrowers who are current on their payments - setting the stage for loan defaults….Jeffrey DeBoer, chief executive of the Real Estate Roundtable, a lobbying group in Washington, is asking for government assistance for his industry and warns of the potential impact of defaults. ‘Each one by itself is not significant,’ he said, ‘but the cumulative effect will put tremendous stress on the financial sector.’

Already, $107 billion worth of office towers, shopping centers and hotels are in some form of distress, ranging from mortgage delinquency to foreclosure, according to Real Capital Analytics.

New York, the biggest market by far, leads the pack with 268 troubled properties valued at $12 billion. But there are 19 more cities, including Atlanta, Denver and Seattle, with more than $1 billion worth of distressed commercial properties. Analysts are especially concerned about buildings like 666 Fifth Avenue, One Park Avenue and the Riverton complex in New York, the Pacifica Tower in San Diego and the Sears Tower in Chicago, which were acquired in 2006 and 2007 with mortgage-backed financing based on future rents rather than existing income.”

Here is a link to this article:
http://www.iht.com/articles/2009/01/04/business/real.php?page=1

Michael

Full post as published by Texas Lawyer Blog on January 05, 2009 (boomark / email).