While many economists are focused on the unemployment numbers, residential foreclosures and the growth of the US economy, there still remains a possible near replay 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 news, news coverage of the commercial real estate market is receiving little press. What many don't know 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 housing market.
The similarities were
1) The commercial mortgage market was sliced and diced by Wall Street to the tune of $700 Billion,
2) Commercial property values jumped dramatically due to easy financing and the resulting demand and
3) Commercial mortgage loan qualifications were eased significantly (but less than residential loan requirements) during the boom.
The differences are
1) A lot less speculation was done in commercial real estate and
2) Nearly all commercial mortgages are short term loans. While less speculation, often in the form of flipping or attempted flipping is a good thing, short term loans is a bad thing so commercial real estate owners don't have the luxury of time to wait out the market or economical swings. On top of that, many of the banks are not making commercial real estate loans except for the really big companies and those with perfect transactions.
Fortunately, 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 stressed out business owners needing a commercial mortgage refinance loan. Many, however have neither the value and equity or sufficient income for debt coverage to allow them to get a loan. Many others are getting hard money commercial loans to bridge the financing gap. If as many gurus project, the commercial market busts anywhere near to what happened in the residential market (and early indicators, such as delinquencies are for this), it could be a huge hit to an already fragile economy. Time will tell.
