subject: Is The Commercial Property Market The Next Big Event For The United States Economy? [print this page] Is The Commercial Property Market The Next Big Event For The United States 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 replay of the housing seizure. I'm talking about the commercial real estate and commercial real estate mortgage loan 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 realize is that while to a lesser degree, the commercial real estate and commercial mortgage markets (an over $6 trillion market) have gone through a very similar phase, as did the residential real estate market.
The similarities were 1) Commercial mortgage loans were sliced and diced by Wall Street to the tune of $700 Billion, 2) Commercial real estate values jumped significantly as a result of easy loans and the resulting demand and 3) Commercial mortgage loan underwriting standards were lowered considerably (but not as much as residential home loan requirements) during the residential housing boom. The differences are 1) A lot less speculation was made in commercial properties and 2) Almost all commercial mortgage loans are shorter term loans. While less speculation, often in the form of flipping or attempted property flipping is a good thing, short term loans can be a bad thing so commercial real estate owners don't have the luxury of time to wait out the market or economical swings. In addition to that, many of the banks are not making commercial real estate mortgage loans the really big companies and those with ideal transactions.
Luckily, there are a few private lenders who are filling some of the void left after the big banks deserted this market but even so, there are a lot of tense business owners needing a commercial mortgage refinance loan. Many, however have neither the value and equity or satisfactory income for debt service to allow them to get a mortgage loan. Quite a few others are getting hard money commercial loans to bridge the financing gap. If as many gurus forecast, the commercial market busts anywhere near to what occurred in the housing market (and early signs, such as delinquencies reflect this), it could be a massive hit to an already delicate US economy. Time will tell.
