Get ready for the collapse of commercial real estate:
That big whoosh you’re hearing is the air rushing out of a commercial real estate bubble.
More than two years into the worst housing crisis in decades, commercial real estate is shaping up as the second half of what some are calling a “double bubble.” Owners of shopping malls, hotels, office space and apartment buildings — and the bankers who financed them — face a major crunch over the next two years as the mortgages on those properties start coming due.
Much like homeowners who now owe more on their mortgage than their house is worth, many commercial property owners have seen the value of their properties plummet, increasing the risk of default on hundreds of billions in commercial real estate loans.
That is expected to put more stress on thousands of banks that have already been deemed “not too big to fail.”
“I have never seen anything this bad,” said Dan Tishman, CEO of Tishman Construction, one of the nation’s leading construction and management firms, comparing the current slide to major commercial real estate busts in the 1980s and ’90s.
Even as economists and federal officials point to recent signs that the recession may be ending, there’s widespread concern that commercial real estate could pose a threat to the recovery. Federal Reserve Chairman Ben Bernanke told members of the House Financial Services Committee this month that “commercial real estate remains a very serious problem.”
The signs are all around if you look for it.
Just down the street from our home is a brand-new strip mall that is still at least 1/3 empty. Over in Fairfax County, I recently met a client at a nine-story office building that opened about two years ago that is less than 20% full.
And that’s in a part of the country that has actually weather the recession pretty well, all things considered.
It won’t take much to push us into the second half of a double-dip recession, and this could be it.