Commercial Loan Defaults May Triple as Rental Income Declines

[RedEarth]

Source: Bloomberg)

Dec. 22 (Bloomberg) -- U.S. commercial properties at risk of default could triple if rental income from office, retail and apartment buildings drops by even 5 percent, a likely possibility given the recession, according to research by New York-based real estate analysts at Reis Inc.

Lenders that used optimistic rent estimates to grant mortgages beginning in 2005 stand to lose as much as $23.1 billion, or 7.02 percent, of total unpaid balances if landlords lose 5 percent of net operating income, according to Reis. Analysts examined data on 22,890 properties that together may account for unpaid loans of about $329 billion in 2009, said Victor Calanog, director of research.

Banks are at risk as office vacancies are forecast to rise to 15.6 percent next year from an estimated 14.6 percent at the end of 2008. Lenders who sold commercial mortgage-backed securities to pension funds, investment banks and foreign governments have been hit by more than $1 trillion in losses and asset writedowns connected to bad residential loans.



Read more: http://www.bloomberg.com/apps/news?pid=20601087&sid=ajBUTKShXZ7s

[xchrom]

1. this could be a very interesting wrinkle. nt

[Roland99]

6. This could be a gaping, mortal wound.

[napi21]

2. I think they're going to lose a whole lot more than 5%! I keep

hearing about many different retailers closing some or all of their stores, and those are in addition to the ones that have already closed!

There's also a LOT of strip centers, at least around here (N. Ga.) that have been built recently but never filled. Some bank holds the mtg. on those buildings, and I can't believe they can sit idle indefinately without collecting any rent!

This whole thing has been bothering me for a long time. There hav e been 15 new strip centers built within 4 miles of my house in the last 2 years, and 2 of them are LARGE shopping complexes. Yes, it's nice to have 2 grocery stores, a new Home Depot, officeMax, Petsmart, Kohls, Target, Marshals, and a lot of new restaurants so close, but are there REALLY enough people WITH ENOUGH MONEY to support all those businesses????

I'm really afraid of the next several years!

[cabluedem]

5. Good questions. Same thing going on here in CA. Stores closing all over. nt

[dysfunctional press]

12. there were probably housing developments planned for the area as well...

some of those stores are built on population projections as well, and the bursting of that bubble has ruined those projections.

[Donnachaidh]

14. we have older strip malls losing tenants and new strip malls just being completed

who are still not getting tenants. This in Newt Country, the land of over-building and excess to the max. We also have house for rent signs (multiples) on every street around the major schools in the area. And apartment complexes offering free first months rents, and STILL not filling to capacity.

People are bailing -- but to where? And those newer strip malls? We can only hope they grow over with grass real soon.

[Mind_your_head]

19. The Kohls, Home Despot, Target "model" is breaking

tsk....tsk.

[mrcheerful]

3. WTF is with this "investment" lie when it comes to lending, stock market or any other type of

gambling scam? Lets call it what it is ..... gambling, they are betting that the money will come in, then when it doesn't its a risk they took. I get so fed up with the stupidity of this country. Just like insurance, no it isn't insurance, your betting the agent that you won't get sick or have an accident when you buy a policy, the problem with the insurance scam? You will never get a dime back from the insurance agent if you don't get sick or have an accident.

Change words and you get a different reaction. If you called lending or the stock market a gamble, people will not buy into it as much as they will if they think they are investing their money into something that will give them a guaranteed return. Every since Reagan played change the word game the american people have stopped thinking about cause and effects, the cons took the words risk out of everything that was risky to create wealth for the few, and dumb ass america bought the pretty package thinking that some day they too will have uncountable wealth.

[Fire1]

4. Up until recently, real estate has always been a low risk gamble.

Some 'gambles' are worth the risk, unless you can 'see' the future.

[Psephos]

7. The stock market has always been a gamble

Every financial investment is a gamble, always has been, always will be. Even if you put your money in a sock under the bed you are gambling your house doesn't burn down.

I'm confounded by how many people don't grasp that there is no absolute security in this world, and can never be. Where did such fantastical thinking arise from? How could such a simple truth not be evident?

[Trajan]

8. I am not sure everyone is saying there is no risk ....

I think most are just astounded by the extent of damage in the train wreck ...

[Psephos]

9. I agree, not everyone is saying it

and I also agree the wreckage is impressive.

But it's by no means unprecedented; history affords plenty of examples. This category of phenomenon is known as a Black Swan. Here's a decent summary: http://en.wikipedia.org/wiki/Black_swan_theory

The failure here is human imagination. We're not very good at accurately assessing actual risk probabilities. If this subject interests you, may I recommend reading Taleb's book (mentioned on the website above)? It's a profound examination of how rare events are the deepest layers of history and progress.

[Arctic Dave]

16. Pretty simple. If you lived you life calculated the worst case scenerio

you wouldn't be very effective. People tend to discount the massive destruction of what if and are correct to do so 99.999999% of the time. When the.000001 happens, well, oops. Who woulda thought.


spelling

[Odin2005]

23. I think people are just disgusted how much $$$ in the markets is mere speculation and not actual...

investment for the long term in companies. This speculation and financial manipulation BS is NOT what I was taught that stock markets are for in my high school civics class. :puke:

[Grinchie]

13. If you want to look at a real enigma, Look at the Hawaii Superferry

This thing was financed through Lehman Bros -- Now Defunct, Fast tracked by the Lingle Republican administration which waived Environmental Laws on the books for years. Subsidized by the State of Hawaii to the tune of 40,000,000 million dollars in Superferry specific harbor upgrades, and then was found to be against the law and the Courts shut them down.

The Lingle administration then passed a law that allowed them to operate this albatros while they complied with the Environmental Assessment, which was published to take 2 years or so. So, the Superferry sails to Kauai, and the locals say B.S. It didn't follw the law, and we don't want it spreading Cars, and invasive species on the Island.

People protest on surfboards, and Lingle sends out a Coast Guard Cutter to "Protect" the Superferry, which should not be operating in the first place. This coat thousands of dollars, and initiated a Patriot Act based Security zone that prevents anyone within 300 yards of the Superferry when it approaches the harbor, or face Felony and imprisonment. Lingle also threatened protester with Child Protective Services review if they brought their kids to a protest with them.

OK, so Superferry decides to avoid Kauai, they won with a massive turnout of pissed off people, byt the Superferry now runs trips from Oahu to Maui, and in the first 3 months, is Damaged by high seas and put into drydock for several months. Additionally, their fares have been ludicrously low, in an attempt to entice the public to use the service in order to skew ridership numbers.

My question is -- Why is this business still alive? It's not making any money, and is in violation of the law.

Yet, when people are left alone to deal with the current economic situation, we lose millions of jobs because they cant afford to pay them when people are not buying the crap product they offer.

The Superferry is a good example of Government subsidies to private entities, because the Superferry has a real purpose that has nothing to do with Passenger transport.

Anybody here savvy enough to know what that is, and why it would warrant skipping out on the responsibility of an Environmental review?

A brownie point to the first person that posts it.

Aloha

[Raster]

15. Copied from Wikipedia:

The Superferry's CEO, John F. Lehman, is a former U.S. Navy secretary whose expertise is in the acquisition of private endeavors with military applications, and that the Superferry is designed to be able to transport military equipment and vehicles, including Stryker combat vehicles.

Brownie point?

[Odin2005]

24. That is F-ing obscene!

"Lingle also threatened protester with Child Protective Services review if they brought their kids to a protest with them."

That is beyond the fucking pale! :puke: ;grr:

[Skink]

10. Maybe cities should mandate a living wage and cap rents.

[w4rma]

11. Maybe the federal government should limit the amount of interest allowed on loans. Retroactively. nt

[Odin2005]

25. I agree with you on the living wage, but capping rents will cause housing shortages. Bad idea.

this is a basic fact of economics, if you put a price cap on something and then if the price as determined by supply and demand exceeds that cap you end up with shortages. better to simply subsidize rents.

[xchrom]

17. maybe this will force landlords to offer different terms than they are now --

allowing -- for more mom and pops stores at an affordable rent -- ya think?

and -- greater diversity in businesses and maybe -- just maybe -- a greater entry way for individuals to open businesses.

[superconnected]

18. I agree. And I'm not buying into the massive cry for help from all the giant industries.

Dear corporate giant landlords, automakers, etc., welcome to the recession, deal with it.

If it weren't the super rich that have always bled us dry, I may be nicer. But when it started with the credit industry...

[xchrom]

20. so many, many people want to start businesses -- but c an't if for no other reason

the cost of rents -- you know horrifying triple net rents etc -- if landlords have to actually work on the side of renters pp
well you might see something wonderfully dynamic.

[sarcasmo]

21. Looks like the renter has to research the landlord equally.

[Gin]

22. (IMO) I think this is setting them up to get the bailout money....

strip malls and office buildings are so overbuilt that I don't know how they could rent the space before the economy tanked......so...I see a hand out coming.