2010 Congressional Oversight Panel Report on Commercial Real Estate Losses and the Risk to Financial Stability

Nobody likes to read government documents and reports. It's probably because they're all long, boring, drawn-out with pages and pages of fluff information that no one cares about. However, in the case of the 2010 Congressional Oversight Panel Report, I started reading the document, and I must say, the information contained is just plain shocking!

You thought it was bad now, their take on the commercial real estate marketing is downright frightening (and if history is any indication, usually correct!). Download the report (it's 190 pages!), but just read the Executive Summary. And make sure you're sitting down. Here's my favorite paragraph:

Between 2010 and 2014, about $1.4 trillion in commercial real estate loans will reach the end of their terms. Nearly half are at present “underwater” – that is, the borrower owes more than the underlying property is currently worth. Commercial property values have fallen more than 40 percent since the beginning of 2007. Increased vacancy rates, which now range from eight percent for multifamily housing to 18 percent for office buildings, and falling rents, which have declined 40 percent for office space and 33 percent for retail space, have exerted a powerful downward pressure on the value of commercial properties.

The largest commercial real estate loan losses are projected for 2011 and beyond; losses at banks alone could range as high as $200-$300 billion. The stress tests conducted last year for 19 major financial institutions examined their capital reserves only through the end of 2010. Even more significantly, small and mid-sized banks were never subjected to any exercise comparable to the stress tests, despite the fact that small and mid-sized banks are proportionately even more exposed than their larger counterparts to commercial real estate loan losses.

Put on your seat belt and get ready for an interesting 5 years regarding commercial foreclosures and commercial REOs. If you're direct to a lender or direct to an investment group, contact us at www.CommercialREOs.com and at least register on the site so when the time's right, perhaps we can make lemonade out of lemons.