CRE Developers: We Need a Bailout, Too
And so the bailout net continues to spread ever wider: not long after news of a bailout for the U.S. auto industry last week, commercial property developers are now making their case for federal dollars, according to a Wall Street Journal report on Monday. It's not hard to see why CRE participants are now headed to Capitol Hill, hat in hand; the commercial real estate industry is poised to take a steep dive in 2009, following the collapse of much of the residential mortgage market and now facing a steep recession that could last through most of next year. The Journal, citing research by Foresight Analytics LLC, notes that $530 billion of commercial mortgages will be due for refinancing over the next three years; $160 billion of that comes in the next 12 months, and likely will face an uphill battle for needed liquidity. A separate report released Monday morning by analysts at real estate firm Reis, Inc. suggested commercial property defaults could be set to triple next year, as rental income may only fall even a meager 5 percent; the culprit, of course, is a lack of available funding for maturing loans. “A large decline in net operating income isn’t necessary to shift a lot of properties underlying CMBS loans into debt- service coverage ratios that would be worrisome,” Victor Calanog, director of research, told Bloomberg News in an interview. For their part, CRE developers are asking to be included in a new $200 billion loan program designed to backstop the market for car loans, student loans and credit-card debt -- other ABS securities. The program was announced by the Federal Reserve a few weeks ago, but isn't likely to be up and running until February of next year; CRE lobbyists are telling the press that may be too long a time horizon given the more immediate concerns in the market. The evidence of a looming bust in CRE markets is clearly building, with Moody’s Investors Service taking the step of warning last week that $110 billion in US CRE-backed CDOs now face possible multi-notch downgrades due to deteriorating market conditions. Despite the gloom and doom, however, any mess in the nation's commercial property markets has yet to clearly materialize. Fitch Ratings noted in a Dec. 16 analysts' report (no link available) that CRE delinquencies actually fell in November, helped in large part by loan extensions. The delinquency rate for CRE CDOs rated by the agency fell to 2.8 percent in Nov., versus 3.13 percent in Oct., the first monthly decline since July. "CMSA believes commercial real estate is being affected by events that are occurring across the capital markets spectrum and by the broader liquidity crisis," said J. Christopher Hoeffel, president of the Commercial Mortgage Securities Association, in remarks during a Sept. capital markets conference. "We really need to drill down to look at what we're talking about with commercial real estate," he said. "The media has been speaking a lot, especially recently, about challenges in commercial real estate. Let's remember when the press talks about commercial real estate, they're talking about a very broad spectrum." Which means real estate markets must be moving quickly these days. After all, it appears that at least some members of that broad spectrum are now worried enough about being left in the cold that they want their own piece of the federal bailout, as well. Write to Paul Jackson at email@example.com.