Tuesday, March 30, 2010

The eye of the storm

The recession is over, the economy is getting better, well maybe not. According to Elizabeth Warren, a woman who knows what she is talking about combined with a willingness to speak the trust, the next shoe is about to drop and it could be a big one, commercial real estate.
By the end of 2010, half of all commercial real estate mortgages in the United States could be "underwater," according to the government's Troubled Asset Relief Program watchdog.

Translation: Americans' financial woes are far from over.

The commercial real estate bubble will grow so large that it will become a "serious problem" that will take at least three years to address, Elizabeth Warren, who chairs the congressional oversight pannel on TARP, told CNBC on Monday.

Nearly 3,000 "mid-sized" banks have what she called "dangerous concentrations" of sinking commercial mortgages: a situation that could result in roughly half the commercial property in the U.S. becoming worth more as debt than as real estate.
Most banks write commercial RE loans in 5 year segments, even if they go 30 years or more. Banks aren't going to "renew" a CRE mortgage if the cash flow won't support it and after the rough patch business has been through, how many owners can show the necessary cash flow? Tick, tock, tick, tock.

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