I don’t know why all the wires are leading with the quote from Rep. Carolyn Maloney, D-NY today, that “The commercial real estate time bomb is ticking.”
I’d venture to say it’s exploding all over the place.
She made the comment at a hearing she chaired of Congress’ Joint Economic Committee.
The first witness to speak was Jon Greenlee, Associate Director, Division of Banking Supervision and Regulation, Board of Governors of the Federal Reserve System (phew). His lackluster delivery almost managed to cover the nasty stats inside his written testimony, as he made such statements as, “As economic conditions have deteriorated we have devoted more resources to assessing the quality of commercial real estate portfolios at institutions with large concentrations, and we have also enhanced our training efforts.”
More important was his final mention that, “We are mindful of the potential of bankers to overshoot in their attempts to tighten lending standards and want them to understand that it is in their own interest to continue making loans to credit-worthy borrowers.”
Commercial lending is basically non-functional right now. Tighter underwriting standards are making it difficult for even well-performing loans to refinance, and falling commercial prices are only adding to the issue. Commercial real estate financing is largely closed for loans in excess of $30-50 million, according to the experts. The expectation is that in the coming years, the amount of capital from traditional sources, like banks, pension funds and insurance companies for commercial real estate will dry up.