Thursday, April 9, 2009
Commercial Real Estate Crisis
"Commercial real-estate loans are going sour at an accelerating pace, threatening to cause tens or possibly even hundreds of billions of dollars in losses to banks already hurt by the housing downturn. ... Some experts say it now looks as if the current commercial real-estate recession will rival or even exceed the one in the early 1990s, when bad commercial-property debt played a big role in dragging the economy into a recession. ... Since late 2007, a total of 47 banks and savings institutions have failed, of which a dozen or so had unsually high commerical mortgage exposure. ... Commercial real-estate debt is potentially more dangerous to the financial system than debt classes such as credit cards and student loans because of its size. ... The [Fed] and the Treasury are moving to adapt a government funding program to make it attractive for investors to buy debt backed by office buildings, hotels, stores and other income-producing property. The program, called the Term Asset-Backed Securities Loan Facility, or TALF, was begun to finance purchases of debt backed by consumer credit, and officials will expand its use to include commerical-property debt. ... The government officials are considering extending the TALF to accommodate the needs of the commerical real-estate industry but no decisions have been made", Lingling Wei at the WSJ, 26 March 2009.
Soon TALF will accept loans backed up by dried cow dung. Next, moist cow dung.