Banks are feeling quite cosy at the moment, record profits, bumper bonuses and it seems that the “Volcker Rule” may be some time off before sweeping regulation takes affect. The spoiler now and it’s a real threat is the $1.4 trillion dollars of commercial real estate loans that have to be refinanced now in 2010 -2014. The scary thing is that nearly half of these loans are “underwater” in other words the properties are worth less than the borrowers owe. But we have had major hiccup in 2010 and that was the Dubai property debt debacle what is probably going to be worse is that as the due dates for these loans near to be re-written banks should brace for major delinquencies and billions of dollars in losses.
This week we learned that Simon Property Group (One of the largest US shopping mall owners) has just offered $10 billion to buy rival General Growth Properties good news you think, wrong GGP are bankrupt last April they were forced to submit the biggest ever commercial real estate bankruptcy in American history a staggering $27.3 billion dollars. The cause of GGP seeking chapter 11, Mortgages they simply could not get the financing and missed a deadline to pay $900 million on some Vegas retail properties. So the proposed offer by the Simon Group really equates to a fire sale of assets and might bring in other players seeking to gain from GGP’s situation.
So the 192 page US congressional oversight panels’ February report makes grim reading the commercial real estate losses will pose a risk to financial stability. The largest losses are forecast for 2011 and being conservative could be between $200 billion - $300 billion. The worry is that 161 banks have failed in the US since 2009 so these types of losses could lead to more bank failures particularly among the mid sized and smaller banks, but the larger well known banks are not immune. Go back to early 2009 and Secretary Tim Geithner’s stress tests, you know the 19 major banks had to prove they had enough capital in the event of another financial crisis. Well the tests only looked as far forward as the end of 2010. So 2011 will be unknown territory, and it could be carnage. Check this scenario apartment blocks with families renting could be evicted if the property owners don’t pay mortgages on time or miss payments. And the lender of last resort The Federal Reserve simply won’t be able to bail out the banks next time around they simply won’t have the money. It’s a grim picture but it could happen the commercial real estate crunch would touch the lives of every American with the US economy still showing weakness and banks reluctant to lend there’s no easy answer or solution to the problems ahead. This financial crisis did not only impact the residential housing market it’s impacted our entire commercial system for years to come.
Things to think about:
$750 billion to $2.2 trillion in cheap financing will come due within the next three years in the US commercial market.
Analysts are warning that the commercial real estate sector in the US seems to be in ‘free fall’.
Values are down about 40% from a year ago, recent market studies show.Real estate deals aren’t happening because banks aren’t making commercial real estate loans because they’re under pressure from regulators to reduce their loan exposure.
During the boom, everything doubled in value when it shouldn’t have, and all of that was facilitated by credit, not by an increase in real value,’
The real worry is the fallout could be Global.
Check these links:
http://www.youtube.com/watch?v=kq3rH1ZJnrc
http://www.youtube.com/watch?v=BSA7xVNVJa4&feature=related
http://www.youtube.com/watch?v=o4IfeXLl2TU&feature=related
http://www.youtube.com/watch?v=3NMgckkZMQs&feature=related
This week we learned that Simon Property Group (One of the largest US shopping mall owners) has just offered $10 billion to buy rival General Growth Properties good news you think, wrong GGP are bankrupt last April they were forced to submit the biggest ever commercial real estate bankruptcy in American history a staggering $27.3 billion dollars. The cause of GGP seeking chapter 11, Mortgages they simply could not get the financing and missed a deadline to pay $900 million on some Vegas retail properties. So the proposed offer by the Simon Group really equates to a fire sale of assets and might bring in other players seeking to gain from GGP’s situation.
So the 192 page US congressional oversight panels’ February report makes grim reading the commercial real estate losses will pose a risk to financial stability. The largest losses are forecast for 2011 and being conservative could be between $200 billion - $300 billion. The worry is that 161 banks have failed in the US since 2009 so these types of losses could lead to more bank failures particularly among the mid sized and smaller banks, but the larger well known banks are not immune. Go back to early 2009 and Secretary Tim Geithner’s stress tests, you know the 19 major banks had to prove they had enough capital in the event of another financial crisis. Well the tests only looked as far forward as the end of 2010. So 2011 will be unknown territory, and it could be carnage. Check this scenario apartment blocks with families renting could be evicted if the property owners don’t pay mortgages on time or miss payments. And the lender of last resort The Federal Reserve simply won’t be able to bail out the banks next time around they simply won’t have the money. It’s a grim picture but it could happen the commercial real estate crunch would touch the lives of every American with the US economy still showing weakness and banks reluctant to lend there’s no easy answer or solution to the problems ahead. This financial crisis did not only impact the residential housing market it’s impacted our entire commercial system for years to come.
Things to think about:
$750 billion to $2.2 trillion in cheap financing will come due within the next three years in the US commercial market.
Analysts are warning that the commercial real estate sector in the US seems to be in ‘free fall’.
Values are down about 40% from a year ago, recent market studies show.Real estate deals aren’t happening because banks aren’t making commercial real estate loans because they’re under pressure from regulators to reduce their loan exposure.
During the boom, everything doubled in value when it shouldn’t have, and all of that was facilitated by credit, not by an increase in real value,’
The real worry is the fallout could be Global.
Check these links:
http://www.youtube.com/watch?v=kq3rH1ZJnrc
http://www.youtube.com/watch?v=BSA7xVNVJa4&feature=related
http://www.youtube.com/watch?v=o4IfeXLl2TU&feature=related
http://www.youtube.com/watch?v=3NMgckkZMQs&feature=related
