Wednesday, September 2, 2009

Commercial Real Estate Crisis and the $1 Trillion Time Bomb

LAS VEGAS - MARCH 21:  Countrywide Home Loans ...

Image by Getty Images via Daylife

By Lingling Wei

Yesterday I wrote about a looming crisis in the commercial-mortgage-backed securities market. But there’s another time bomb ticking away in the commercial sector: U.S. banks are holding more than $1 trillion of mortgages backed by commercial property that is fast losing value.

According to analysts at Deutsche Bank AG, as property value declines and scarce credit continue to drive commercial property developers and investors into default, total lifetime losses on banks’ $1 trillion “core” commercial-mortgage holdings, or those backed by income-producing properties, would reach between 11.6% and 15.3%, or $115 billion and $150 billion. Those expected losses would be at least as large as those on loans originated and bundled into commercial-mortgage-backed securities, or CMBS, from 2005 and 2008, a period of cheap and reckless credit, the analysts estimate.

Commercial Real Estate Crisis and the $1 Trillion Time Bomb - Developments - WSJ

Reblog this post [with Zemanta]