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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: ChanceIs who wrote (209631)	7/9/2009 12:44:14 PM
From: ChanceIs	Read Replies (2) \| Respond to of 306849

(General Electric) Commercial real estate woes grow >>>See the highlights at the bottom regarding GE's exposure and losses. This is starting to get out into the mainstream media. That is when the greatest price moves come - even though they are usually about 18 months figuring things out. It also means that you should have your exit strategy planned - the ride usually ends when J6P comes to understand.<<< Experts, lawmakers warn of mushrooming crisis in commercial real estate * By Alan Zibel, AP Real Estate Writer WASHINGTON (AP) -- Owners of shopping malls, hotels and offices are defaulting on their loans at an alarming rate, and the commercial real estate market is not expected to hit bottom for three more years, industry experts warned Thursday. "The commercial real estate time bomb is ticking," said Rep. Carolyn Maloney, D-N.Y., who heads the congressional Joint Economic Committee. Delinquency rates on commercial loans have doubled in the past year to 7 percent as more companies downsize and retailers close their doors, according to the Federal Reserve. Small and regional banks face the greatest risk of severe losses from commercial real estate loans. The commercial real estate market's fortunes are tied closely to the economy, especially unemployment, which hit 9.5 percent in June. As people lose their jobs, or have their hours reduced, they cut back on spending, which hurts retailers, and take fewer trips, which hits hotels. Funding for commercial loans virtually shut down last year as the financial system unraveled. Industry executives say financing is still extremely difficult to obtain, even for financially healthy properties. While that may seem like an abstract problem, it has real-world consequences. New construction projects have come to a virtual standstill. That means reduced tax revenue for local governments and fewer construction jobs, said Jeffrey DeBoer, chief executive of the Real Estate Roundtable, an industry group. The commercial property industry is "not going to turn around until consumers and businesses start spending money again," he said. Total losses in securities backed by commercial property loans could be as high as $90 billion in the coming years, according to Deutsche Bank analyst Richard Parkus. He says even more losses -- up to $140 billion -- are expected from construction loans made by regional and local banks, rather than those sold as securities held by investors. "We believe the bottom is several years away," Parkus told lawmakers. In April, the second-largest owner of shopping malls in the nation, General Growth Properties Inc., buckled under $27 billion in debt and filed for Chapter 11 bankruptcy protection. And the pain is spreading throughout the economy. GE Capital, the financial arm of the conglomerate General Electric Co., has seen its profits from commercial real estate snuffed out recent quarters. It went from making $476 million in the 2008 first quarter from its portfolio of office buildings, retail centers and manufacturing facilities to a loss of $173 million in the first quarter of this year and warned that losses on its commercial real estate loans and property holdings could reach $6 billion this year. At the hearing, a Federal Reserve official said the central bank is paying extra attention to banks' books as losses from sour commercial real estate loans keep mounting. Jon Greenlee, associate director of the Fed's division of banking supervision, told the panel that the central bank has stepped up training of its bank examiners so they are ready to deal with rising losses from the commercial real estate industry.