The Commercial Real Estate: The Second U.S. Home Crisis?
The Federal Reserve and the Treasury Department United States struggle to prevent the commercial real estate dealt a devastating blow to the economy of that country at the moment trying to get off the canvas. Their efforts, however, could be hampered by a rise in foreclosures of commercial properties with mortgages that were packaged and sold by Wall Street as debt instruments. Now the recession is testing commercial mortgage-backed securities in the order of U.S. $700,000 million.

The commercial real estate sector experienced two kinds of pain that, according to credit rating agency Realpoint LLC, its delinquency rate rose to 3.14% in July, six times the level in July last year. A problem arises simply from the lack of stricter standards. In the era of easy money, Wall Street to lend money to homeowners with the implicit belief that occupancy rates and rents of office buildings, hotels, businesses and other commercial properties continue to rise. The result is that an increasing number of properties are not generating sufficient cash to pay principal or interest on loans.

The second problem that plagues the industry comes from the inability of owners to refinance commercial real estate securities backed by mortgages. It is estimated that by the end of 2012 loans expire about U.S. $ 153,000 million. Deutsche Bank analysts estimate that about U.S. $ 100.00 million will be difficult to refinance. Although these properties have sufficient cash flow to pay interest and principal, their values have fallen so much that owners may not extend or replace existing mortgages with new debt. That means there will be losses not only for owners, but for investors who bought these mortgage-backed securities business, including hedge funds, pension funds and other institutional investors. That would exacerbate the recession that crosses U.S.

A typical commercial mortgage backed securities mortgage contains a diverse group of properties, often less than 100, with loans ranging from $ 2 million to over U.S. $ 100 million. A company, usually a large bank like Wachovia and Wells Fargo charge of collecting monthly payments from borrowers and give them the money from institutional investors who buy securities. A significant increase in commercial property foreclosures could further depress values most active since the market would come at clearance prices. This would exert pressure for banks to make write-offs of these loans. What is happening in the market for commercial mortgage-backed securities is a prelude to what may happen in the books of banks.