CRE Developers Looking for Bailout, Commercial Defaults to Triple

Looks like we're heading toward critical mass. I hate being the bearer of bad news again, but there isn't much positive news out there to report. As the Sarasota Herald article stated, seems like we're in for a bumpy 2009. I expect to see a lot of property hit the market in the next 13 months at prices once unthinkable.

US developers seek aid from government

By Bloomberg News | December 23, 2008

NEW YORK - The biggest property developers in the United States are asking to be included in the federal government's efforts to jump-start commercial lending, said Jeff DeBoer, president of the Washington-based Real Estate Roundtable.

The help could come through a new $200 billion loan program established to aid the market for car loans, student loans, and credit-card debt, or through a separate pool that would allow property owners to refinance mortgages, DeBoer said. The group represents property owners, developers, lenders, and management companies.

About $270 billion of mortgages on shopping malls, apartment complexes, and office buildings must be refinanced in 2009, according to Barclays estimates. Commercial loan defaults will accelerate as banks and insurance companies rein in lending to manage their balance sheets and as the market for commercial mortgage-backed securities stays shut, Fitch Ratings said in a Nov. 17 report.

"They are trying to alert members of Congress and the public to a very serious problem that is coming," DeBoer said of the developers. "Until the credit markets function again, this could be a serious problem."

Commercial mortgages are usually written for a period of five to 10 years with the expectation they will then be refinanced, DeBoer said. That can't happen currently because banks are reluctant to lend.

Under the Term Asset-Backed Securities Loan Facility, or TALF, the Federal Reserve has agreed to lend to some holders of securities backed by "newly and recently originated" loans. The loans include those for education, cars, and credit cards.

The Fed intends to have TALF running by February and has said it may expand it to commercial mortgages.

Mitchell Hersh, chief executive of Mack-Cali Realty Corp., declined to comment. A spokeswoman for Richard Clark, CEO of Brookfield Properties Corp., Lower Manhattan's largest landlord, said Clark was unavailable.

Commercial property prices fell 2.4 percent in October, Moody's said in a report yesterday. The Moody's/REAL commercial property price index, which tracks prices nationwide for offices, stores, warehouses, and apartments based on repeat sales, is now 11.5 percent below its October 2007 peak, according to the report.

US commercial properties at risk of default could triple if rental income from office, retail, and apartment buildings drops even 5 percent, according to research by real estate analysts at New York-based Reis Inc.

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