Values are Falling
The clock is ticking. It is winding down to a time when America’s commercial real estate loans and properties face a reckoning. It won’t be a specific day. It will be more like a series of months as commercial mortgages made in the heady days of 2005 to 2007 come due. No one really knows what will occur other than very few of theses mortgages will be reset and if the restrictions on new loans on lower valuations will be unbearable on the property owner/ developer.
There’s really no way getting around the fact that commercial values have plummeted to 35% or more since loan inception. After two miserable years as the housing markets cratered we are now waiting for the other shoe to drop. When it does, it will hit with a resounding “thud” and there will be no bounce to it. That thunderous thud will shake the foundations of many a financial institution, as well as, jobs and the personal wealth of many individuals and small business owners/commercial developers who will most assuredly lose it all in a foreclosure.
The American landscape will be cluttered with vacant, abandoned and shuttered commercial buildings of all type owned by banks unable or unwilling to reinvest in these orphaned properties. Former owners could possibly lose all equity when what they held in properties to secure their lives in the next 10 to 30 years simply vaporizes. Hopefully news of two weeks ago from the FDIC at easing restrictions on commercial loans will help but it still is a tense time for commercial owners.
Over the next 36 months even the most tight-fisted of salvage investors ( sometimes know as bottom fishers) will just wait it out along the sidelines. Already battered lenders will become unwilling owners and desperately seek to quickly unload these declining assets. We all will hold on tight while we try to find the commercial version of this uncharted bottom carved out by the default of hundreds of billions in commercial real estate loans. This adjustment in what some consider to be almost $1.5 to $2 trillion in outstanding commercial loans could serve to stall an already weakened economy and prolong our full recovery by years.
Of course the consumers risk will increase greatly when all of this occurs. Bank reaction will be to shore up by clamping down on home and car loans and tightening of credit cards restrictions. Lenders will also be pushed to speed up the sales of foreclosed homes which will further deflate residential prices. Every commercial property, business owner and consumer will be somehow adversely effected until we move through this in the coming years. Over time the foreclosures will be cleared out and values will reset, but not before many a business or families finances are effected in ways we never would have thought of only two short years back.
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Instead, he is Director of Investment Sales at a commercial real estate brokerage company near our home. Real Estate