by Calculated Risk on 11/19/2008 05:31:00 PM

A couple of quotes from Bloomberg: Commercial mortgages seen at risk as economy weakens (hat tip Dwight)

"There is a growing concern that (commercial real estate) is going to be another tripping point in the economy."
William Larkin, portfolio manager with Cabot Money Management

"The mall operators are really, really in trouble. There aren't even signs on the empty stores in the malls. They've been empty for a while, barren, tumbleweeds blowing through."
Kevin Quinn, a managing director of equity trading at Stanford Group Company

And here is a forecast of office vacancy rates increasing significantly in Chicago via the Chicago Tribune: Chicago's commercial real estate climate may soon grow colder. (hat tip Walt) A few excerpts:

With banks and investment firms occupying 12 million square feet of office space, consolidation and downsizing could push the downtown vacancy rate from 12 percent to nearly 18 percent by 2010.
...
Commercial real estate faces one of its most challenging climates in nearly two decades.
...
"I think we could easily see an effective drop in rents over the next 12 months of 15 to 20 percent from where they are today." [said John Goodman, Chicago-based executive vice president with Studley, a real estate firm]

This story is playing out all over the country.

There are a couple of key points:

as vacancies are rising, rents are falling - and any commercial loan based on a overly optimistic (added) "pro forma" analysis is in jeopardy of default.

new non-residential investment in offices, malls and hotels will slow sharply.

As example, in Chicago there are several new buildings just being finished:

Adding to the vacancies, three major developments are due for completion next year, flooding downtown Chicago with another 3.6 million square feet of office space.

But the good news for landlords - and bad news for construction related businesses - is there are "no new office buildings on the horizon for 2010 and only one ... planned for 2011." This fits with the Architecture Billings Index released earlier today.