Is The Commercial Property Market The Next Big Problem For The Us Economy?

While many forecasters are keying on the unemployment numbers

, residential foreclosures and the growth of the US economy, there still remains a potential near repeat of the housing bust. I'm talking about the commercial real estate and commercial real estate mortgage markets.

While the factors that led to the housing bust have and continue to be front and center in the main stream news, news coverage of the commercial real estate market is receiving little press. What many people don't know is that while to a lesser degree, the commercial property and commercial mortgage markets (an over $6 trillion market) have gone through a very similar phase, as did the residential housing market.

The similarities were 1) Commercial property loans were sliced and diced by Wall Street to the tune of $700 Billion, 2) Commercial real estate values increased dramatically as a result of easy loans and the resulting demand and 3) Commercial mortgage lending standards were eased significantly (but less than residential lending requirements) during the boom. The differences are 1) Considerably less speculation was done in commercial properties and 2) Practically all commercial mortgages are shorter term loans. While less speculation, often in the form of flipping or attempted flipping is a good thing, short term loans can be a bad thing so commercial property owners don't have the luxury of time to wait out the marketplace or economical swings. On top of that, many of the commercial banks are not making commercial real estate mortgages the really big companies and those with ideal transactions.

Luckily, there are a few private commercial lenders who are filling some of the void left after the big banks abandoned this market but even so, there are a lot of stressed out business owners needing a commercial mortgage loan. Many, however have neither the market value and equity or satisfactory income for debt service to allow them to get a commercial loan. Countless others are getting hard money commercial loans to bridge the financing gap. If as many gurus predict, the commercial market bursts anywhere near to what happened in the residential market (and early signs, such as delinquencies reflect this), it could be a colossal hit to an already tenuous US economy. Only time will tell.

by: Ron Stone

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