by Tim Davis
There are many news reports about the status of the commercial real estate mortage market – we have even reported on them here on Real Estate Jokers – The Mortgage Crisis May Have a Second Act? – but what is uncertain is exactly how much debt is on the books, and how much is going to mature or come due as the five year notes expire? I read an interesting article on Zero Hedge a while back that estimated the total commercial debt at over $1 trillion:
“Banks have $1.1 trillion in core commercial real estate loans on their books according to the FDIC, another $590 billion in construction loans, $205 billion in multifamily loans and $63 billion in farm loans. The precise maturity schedule for these loans is not definitive, however bank loans tend to have short-term durations, and the assumption is that all will mature by 2013, exhibiting moderate increases in maturities due to activity pick up over the last 2-3 years.”
So with this information we can make some assumptions: Like always, every year thousands of commercial mortgages come due. We are going to see a moderate increase in the number needing renewal in the coming years, based on the fact that investors were buying and selling more property in the last few years – or at least more than they were in the late 1990′s. So my point here is that the real problem, still, lies in the negative equity positions of the properties financed in the last 5 years, not in the structure fo the loans themselves. These are the properties that were sold ( and financed) in the last 2-3 years for 30-40% more than they are worth in today’s market. So if you property is cash-flowing, and you have some positive equity – you are a much more attractive customer to the banking industry.
You could be like Jared Kushner, and have a $1 billion dollar building in your portfolio, that you paid nearly $2 billion for in ’06 – financed it 100% with debt by the way…and now it is 40% vacant….ouch.
