RCA in the commercial property press:

Facing the next real-estate collapse

New York Post reports: The next wave of the credit crisis is about to hit -- a collapse in commercial real estate and potential explosion of bank failures. With its resources tapped out by the first wave, what should Washington do?

Over the last year, the Federal Reserve doubled the size of its balance sheet, and took unprecedented action in monetizing government debt and extending credit to financial institutions. Now it must head off inflation and extricate itself from $5 trillion-plus in credit exposure from various bailouts. The Treasury, meanwhile, is issuing debt at the fastest pace in peacetime history.

Now comes the next crisis. The same factors that caused the residential bubble -- easy credit, lax lending standards and booming mortgage-backed-securities underwriting -- also drove commercial real-estate overvaluation. But the commercial market lags the residential one by about a year, so this bubble is still popping.

Already, commercial-real-estate prices nationwide are 39% off their peak of two years ago, reports the MIT Center for Real Estate. The 18% price decline in this year's second quarter was the largest quarterly drop in 25 years.

Most commercial properties bought or refinanced in the last five years are now upside-down on their loans -- that is, the property can't be sold for its finance value or purchase price. Commercial real estate market research firm Real Capital Analytics reports that owners have lost their entire down payments on about $1.3 trillion worth of property.

Nearly half of all U.S. commercial-real-estate-mortgage loans come due within the next five years. Deutsche Bank believes that 65% or more will fail to qualify for refinancing.

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Posted by: Matthew Stone

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