The Wall Street Journal reports this morning that commercial developers who own thousands of shopping centers, office complexes, hotels, and other commercial buildings have been pressing the Treasury Department to include their industry in a $200 billion loan program being created to salvage the market for car loans, student loans, and credit-card debt. Some are even suggesting setting up a separate program to increase lending to commercial real estate only.
One is inclined to react to this news by asking, “Are you kidding me? Is anyone in this country capable of doing business legitimately (see credit default swap) or ethically (see Madoff Securities)?”
But the real story about the looming disaster in commercial real estate is not about competence or character but timing. Most commercial properties are financed with five-, seven-, or ten-year notes, which means those properties that were financed five, seven, and ten years ago with notes coming due have the misfortune of having to refinance in the worst credit market in decades. On top of this, packaging commercial loans and selling them off as securities has ground to a halt.
To get a better idea of the particulars, download this insightful report from Deutsche Bank that surveys all aspects of commercial real estate markets not only by type but by region.