Throughout the U.S., massive numbers of foreclosures have swept through residential real estate. By contrast, commercial real estate foreclosures remain relatively few and far between, even in cities the economic downturn has hit hardest. Bankruptcies are even rarer.
Right now we are witnessing what in many respects may prove to be the proverbial calm before the storm. Commercial real estate owners will soon face gale-force winds on two fronts. The rapidly deteriorating real estate market has only recently hit commercial properties. More critically, loans issued in the boom years are only now coming due, with little or no prospect of refinancing.
"What worries people the most is that even healthy assets can't get refinanced," says Dan Fasulo, managing director of New York research firm Real Capital Analytics. "There's so much dislocation in the debt market. It no longer has the capacity to refinance all the loans that are coming due."
Real Capital Analytics considers about $21 billion worth of commercial real estate in distress, while almost $81 billion worth of additional property faces potential troubles in 2009. In all, roughly 5,000 individual properties are on Real Capital Analytics' watch list. Fasulo believes his current forecast errs on the conservative side.