Saturday, August 01, 2009

What size is that next shoe to drop? CRE woes threaten Economy

excerpt from
by Cody Lyon
NEW YORK CITY-Last week, Federal Reserve chairman Ben Bernanke presented his agency’s semi-annual Monetary Policy Report to both houses of Congress. In response to Senate questions, Bernanke admitted that the rising tide of problems in the commercial mortgage market could pose "serious and major challenges to the banking system." But, when asked by New Jersey Sen. Robert Menendez if the Fed had the tools to "stem" any approaching crisis, Bernanke replied that he did not know.
Experts agree that the sea of maturing commercial real estate mortgages is the next shoe to drop in the nation’s recession. But the size of that shoe remains to be seen, and just how far it falls is anyone’s guess. And there’s no consensus, on whether greater government intervention will jump-start the sleeping industry and perhaps soften any blows the crisis throws at the nation’s banking system.

"We’re in for some tough times," says Robert Dobilas, CEO/president at Realpoint LLC, the credit rating agency based in Horsham, PA. He adds, "we’re midstream in the fall."

Undoubtedly, the commercial sector’s nose-dive at least has the potential to further destabilize the nation’s financial markets. The Fed says US banks hold around $1.8 trillion in commercial real estate loans. Data from Real Capital Analytics’ mid-year report show that during the first half of 2009, the number of distressed commercial properties rose by $67 billion to $115 billion, an increase of 122%.


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