According to an article in Friday’s ‘The Globe And Mail’, the banking industry, which has a $1.8-trillion exposure to commercial real estate, could face losses of nearly $200-billion. Real estate insiders, experts and regulators warn that CRE is headed for a crash.
The epicentre of the commercial real estate crisis is New York, where nearly $8-billion (U.S.) worth of commercial properties – mainly office towers – are in various stages of financial distress.
But Manhattan isn’t the only problem market. A growing number of properties are in trouble in several other major cities, including Las Vegas, Los Angeles, Detroit, Phoenix, Chicago, Dallas and Boston…
And the crisis is only just beginning. A wave of loans…are now coming due, including roughly $400-billion (U.S.) worth this year and more than $1.8-trillion by 2012, according to the Washington-based Real Estate Roundtable.
Deutsche Bank real estate analyst Richard Parkus says that unlike the housing meltdown, the CRE crisis is likely to hit smaller banks the hardest.
Mr. Parkus points out that the four largest U.S. banks have an average exposure of 2 per cent to commercial real estate. The 30 to 100 largest banks have an average 12-per-cent exposure.
“We see [commercial real estate] as a very significant risk,” acknowledged Jon Greenlee, the Fed’s associate director of bank supervision and regulation.
He pointed out that the 19 large financial institutions that recently underwent stress tests had roughly $600-billion in commercial real estate loans. The total market is worth $3.5-trillion.
There were 5,315 U.S. commercial properties in default, foreclosure or bankruptcy at the end of June, more than twice the number at the end of 2008, with hotels and retail among the most “problematic,” Real Capital Analytics Inc. said in a report Thursday.
Graph: The Globe And Mail