Commercial property losses will hit US banks
Oct 09, 2009
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Banks won't be boosting lending significantly anytime soon. The International Monetary Fund estimated last week that they have still only written down around half of their likely overall credit-crunch losses.
One area where there's plenty of bad news to come is US commercial property, says Gary D Halbert of Halbert Wealth Management. Prices have fallen by 39% from the peak; rents in New York could slide by 20% in 2010.
Many commercial mortgages, like their residential subprime counterparts, were packaged up and sold on as commercial mortgage-backed securities (CMBS), says Halbert.
Due to both careless lending and a sliding economy, the delinquency rate for CMBS has shot up sixfold in a year. And most of the loans making up CMBS that fall due in the next five years – $100bn of $153bn, reckons Deutsche Bank, although others estimate twice as much – will be "difficult or impossible" to refinance as the value of the properties behind them have slid so far.
So expect far more commercial property write-downs across the financial system, says Halbert. We have only seen "a fraction" so far.
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