With property values down 40% in two years, delinquency rates increasing, and U.S. banks in a liquidity crisis that has driven the cost of funds to unprecedented levels, commercial real estate owners and developers are finding themselves between a rock and a hard place. With Goldman Sachs reporting that $1.2 trillion in commercial real estate debt is due to mature by 2013, it?s a ticking time bomb. The Mortgage Bankers Association has reported that two-thirds of commercial securitized loans and one-half of whole loans won?t qualify for rollovers or bank refinancing when they mature. Even if they did, the supply of commercial real estate financing just isn?t there. In fact, commercial-mortgage-backed security loans, or CMBS, which account for 20% of all commercial loans, have already dried up. Further aggravating bank liquidity is the fact that most commercial banks will not be in a position to extend credit to new borrowers for as long as the banks continue struggling with their deteriorating commercial loan portfolios. At risk are literally hundreds of billions of dollars in distressed debt that banks can?t or won?t accommodate. Almost all of the media attention has been on the distressed banks, how under-reserved banks are hurting, and how government has been rushing to aid them with many billions of dollars in bailout money that the U.S. Mint can?t print fast enough.
