Commercial Real Estate Worries Grow

Indeed, many property developers and investors complain there is no way to identify the investors that hold their debt and that it is difficult to negotiate with CMBS servicers. In light of the complaints, the Treasury is considering guidance that would allow servicers to start talking about ways to avoid defaults and foreclosures sooner, according to people familiar with the matter. But investors in CMBS bonds argue that the servicers are ultimately bound contractually to the bondholders.

So Maguire will soon have a lot of company. In a study for The Wall Street Journal, Realpoint found that 281 CMBS loans valued at $6.3 billion weren’t able to refinance when they matured in the past three month, even though 173 such loans worth $5.1 billion were throwing off more than enough cash to service their debt.

This tidbit from a WSJ hits on the head how long and deep the hit to CRE will be. Surely prices have fallen, but the question everybody wants an answer to is whether the crisis will be as profound as the residential sector.

My personal take is that many landlords (such as Maguire as mentioned in the article) stand to take huge financial hits, but the overall impact on the market will be more negligible than many are forecasting.

The impact on the books of banks and insurance companies will be big, but they are gearing up to take those hits. We will see continued weakness in the economy, but a calamity that will take down the banking sector the way the subprime residential crisis threatened to is unlikely to happen.

Nevertheless, the blow can be softened if the government can find a way to reconcile bondholder’s rights while giving servicers the ability to negotiate workout deals without the fear of getting sued.

[via WSJ]

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• Banks Bracing For CRE Defaults

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