Recently I blogged about President Obama’s proposal to help community banks lend more money to entrepreneurs. For many small business owners in the Great Recession, community banks have been a lifeline.
But that lifeline could be about to snap. The Congressional Oversight Panel, which monitors the financial bailout, just released a report on the state of commercial real estate lending-and the news is not good.
“There’s been an enormous bubble in commercial real estate, and it has to come down,” panel chair Elizabeth Warren told the Washington Post. “A mortgage crisis like the one that has devastated homeowners is enveloping the nation’s office and retail buildings,” the Post reports. The fallout will hit community banks hard.
In general, large, community banks haven’t been hurt by the residential real estate crisis. But community banks issued higher proportions of commercial mortgages than did the big banks. Some 3,000 community banks have disproportionate amounts of commercial loans relative to their assets, according to the oversight panel’s report. And, as Warren says, “Every dollar [community banks] lose in commercial real estate is a dollar they can’t use for small businesses.”
Commercial real estate mortgages have shorter terms than standard residential mortgages; according to the report, some $1.4 trillion in commercial real estate debt will come due in the next three years. And Warren says, half of all commercial real estate mortgages will be underwater by 2011.
Areas most at risk? South Florida, metropolitan New York and Washington, DC, lead the nation in the per capita value of commercial real estate currently in foreclosure, default or delinquency, according to research group Real Capital Analytics.
Responding to the problems many borrowers are already having refinancing commercial mortgages. President Obama has proposed expanding the SBA’s 504 loan program to temporarily support refinancing for owner-occupied commercial real estate loans. Currently, these loans cannot be used to refinance maturing debt.
The full report from the Congressional Oversight Panel is interesting reading.
While skiing in Utah I spoke with a man in commercial real estate and he had the same message; that commercial real estate was bad now, but was going to get even worse. So buckle up everyone!
Several of us have been discussing this (offline) for months now. I’m so glad you brought it up.
Please don’t accuse me of being a “Negative Ned,” but with all the empty commercial space that’s around, when this bubble bursts, it may just push us back another year in our rather weak recovery.
I’m just sayin…
The Franchise King
That’s exactly why we are launching REAL COMMERCIAL REAL ESTATE TV… it’s critical to get behind the daily headlines and make real reporting with perspective available in today’s market.
You have a really good point about the commercial real estate market right now. This was such a useful article for me. I definitely will look to find out more about this impact on small businesses.
Glad to be of help. Since I posted this, I’ve heard so many people talk about the impending commercial real estate collapse. Of course, nothing is inevitable, just be very cautious.
Nicaragua Real Estate
Yha commercial real estate business is going dull and it may affect other small businesses.
The commercial real estate bubble was creating by extremely low interest rates by the Federal Reserve. People couldn’t wait to get their hands on the cheap money and speculate.