The agency cites figures that have become route knowledge within theindustry: Between 2010 and 2014, about $1.4 trillion in commercialreal estate loans will reach the end of their terms. Nearly half areunderwater as commercial property values have fallen more than 40%since the beginning of 2007. Increased vacancy rates continue toexert a powerful downward pressure on the value of commercialproperties.
It will be the smaller regional and community banks--which have higherconcentrations of such loans--that will experience a disproportionateshare of defaults, compared to larger national or money center banks,the report found.
The report leaves little in the way of conclusions or recommendationsother than to acknowledge that this is a complex situation with noeasy path out. The report may, though, facilitate lobbying efforts bythe commercial real estate industry. Such organizations as the RealEstate Roundtable and Commercial Mortgage Securities Association havebeen pushing for--or working to refine--legislation that would helpease capital constraints. In the case of the Roundtable its currentpush is to free restrictions on foreign investors that seek to buy USreal estate. CMSA, for its part, is working to keep securitizationrequirements for CMBS as industry-friendly as possible.
The panel's focus on small banks, though, could have an inadvertentchilling affect on lending activities. Even though they are beingencouraged,or rather urged, to lend money, smaller banks areconcerned about bringing down undue regulatory scrutiny. Real estateloans--especially if the category becomes 'tainted' in the eyes ofregulators--may be a category they choose to avoid, at least untilthe sector recovers.
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