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Commercial Real Estate Could Be Next Economic Threat

  • Mario Ritter

Click here for Lao version/ຄລິກບ່ອນນີ້ເພື່ອອ່ານພາສາລາວ

Banks hold large amounts of debt tied to business properties. Lower property values and rents are making it harder for owners to pay their loans

The American housing collapse was a major cause of the recession. The housing market is showing new life after three years of falling prices and too much supply. But now there are worries that banks could face big losses next on business properties.

For example, one effect of a weak economy is less demand for office space. As a result, property owners earn less and charge less in rent. This puts pressure especially on owners who borrowed a lot money.

Easy credit helped fuel an explosion of development. The market hit a high point in two thousand seven.

Now, late payments are growing. Almost three percent of commercial mortgages were reported at least ninety days late between April and June. That was double a year earlier.


One major lender lost more than a billion and a half dollars in the second quarter. Capmark Financial Group said it might seek bankruptcy protection from its creditors. Medium and small banks also face a growing risk.

Commercial properties face two serious problems. One is falling prices - down by one-fourth since two thousand seven. The other is refinancing.

Most commercial real estate loans have terms of ten years or less. They often end with a large payment, a balloon payment, which owners usually refinance. But lower property values and tighter lending requirements mean a harder time getting new loans.

The United States is not alone. Commercial rents in Moscow, Hong Kong, Singapore and Mumbai have fallen thirty percent or more.

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