Fed Prepares for Commercial Market Bailout

Real estate experts agree that the best hope for avoiding a commercial real estate crisis similar to the residential one is another bailout from the federal government.

Last week, Federal Reserve Chair Ben Bernanke suggested at least $1 trillion in credit would be forthcoming in order to avoid a “looming crisis.”

Analysts say that while delinquencies are few, office vacancy rates are nearing record levels. This leaves banks holding $1.72 trillion in outstanding commercial loans and many of them are on buildings that are nearly empty. In 2009, $300 billion of these loans are due to be refinanced by commercial banks, but the banks are reluctant to refinance because the properties are dropping in value.

Since both insurance companies and pension funds are heavily invested in commercial real estate, they, too, are at risk.

“The need is urgent,” says Kenneth Rosen, a professor of real estate at the University of California in Berkeley. “It is important to get this done before we have another problem.”

Source: Christian Science Monitor, Ron Scherer (03/09/2009)