Tough years ahead for commercial real estate – and community banks
(Feb 12, 2010) The Congressional Oversight Panel released its February report yesterday and it is grim. The title of the report says it all – “Commercial Real Estate Losses and the Threat to Financial Stability.” The problem is that there is over $1.4 trillion in loans coming due within the next four years. Over half of those loans are “underwater.” Refinancing will not be available for those loans or many loans for properties that are currently profitable. And get this: “Community banks, unlike the largest Wall Street banks, face the greatest risk for insolvency due to mounting commercial real estate loan losses.”
Some other quips from yesterday’s news release:
According to federal guidelines, 2,988 banks nationwide are classified as having a “CRE Concentration.” None of these banks are among the 19 largest bank holding companies.
The Panel found that “a significant wave of commercial mortgage defaults would trigger economic damage that could touch the lives of nearly every American.” When commercial properties fail, it creates a downward spiral of economic contraction: job losses; deteriorating store fronts, office buildings and apartments; and the failure of the banks serving those communities. Because community banks play a critical role in financing the small businesses that could help the American economy create new jobs, their widespread failure could disrupt local communities, undermine the economic recovery and extend an already painful recession.