It's all Bush's fault. As is bad weather, the Blazers losing and everything else wrong in the world. That said, yes this could get real ugly.
Commercial RE is a bit of a different issue than residential RE. First, most CRE loans aren't fully amortizing. They're generally 5, 7 or 10 years with anywhere between a 15-25 amortization. The problem is that there's no money to refinance as most companies are looking to reduce their exposure to CRE loans. If the current lenders can't be taken out, the property owners are in a tough spot. Second, this won't be much on the commercial banks, because most loans are held by life companies and pension funds. There is a healthy CMBS market, so those bondholders--especially those that hold mezzanine paper--are going to get stung a bit. Third, when the property owners go back in the market, not only are they facing fewer lenders, they're finding a lower D/E ratio, a higher interest rate, a higher debt coverage ration and fewer years of amortization. It points to a contraction of the money available with an increase in the monthly payment. In many cases, there's no choice but to hand the keys over to the former lender. Fourth, these properties are bankruptcy-remote entities. They get the property and that's it. It's highly unusual there's a personal guarantee on these loans. In the late 80s and early 90s, we had the Resolution Trust Corporation to deal with the S&L crisis started by the elimination of passive loss in CRE properties. It cost the American taxpayers billions and allowed the opportunistic to make fortunes. I suspect we'll see another RTC if the lending market and the economy don't improve soon.
