by Bill McBride on 3/25/2009 09:14:00 PM
Wednesday, March 25, 2009
From Lingling Wei at the WSJ: Commercial Property Faces Crisis (ht Mark, Patrick)
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.Perfect hindsight? This CRE bust has been obvious for a few years ... maybe a little foresight would have helped.
The delinquency rate on about $700 billion in securitized loans backed by office buildings, hotels, stores and other investment property has more than doubled since September to 1.8% this month ... Foresight Analytics in Oakland, Calif., estimates the U.S. banking sector could suffer as much as $250 billion in commercial-real-estate losses in this downturn. The research firm projects that more than 700 banks could fail as a result of their exposure to commercial real estate.
In contrast to home mortgages -- the majority of which were made by only 10 or so giant institutions -- hundreds of small and regional banks loaded up on commercial real estate. As of Dec. 31, more than 2,900 banks and savings institutions had more than 300% of their risk-based capital in commercial real-estate loans, including both commercial mortgages and construction loans.
At First Bank of Beverly Hills in Calabasas, Calif., , the amount of commercial-property debt outstanding was 14 times the bank's total risk-based capital as of the end of last year. Delinquencies reached 12.9%, compared with the average of 7% among the nation's banks and thrifts.
"In perfect hindsight, we would have done less commercial real-estate lending," said Larry B. Faigin, president and CEO.
Posted by Bill McBride on 3/25/2009 09:14:00 PM