Crisis In The Commercial Mortgage Market

Nov 21st, 2008 @ 5:30 PM by Alden Smith

Following the mortgage market as I have this past 2 years, I see the domino effect of trouble in one market falling over into the next. Residential mortgages and that market have taken a big ding this past year, with billions lost and foreclosures looming on every horizon. Experts in the field do not see an end to the bleeding yet, and this situation is affecting almost every area of the country, from gasoline prices to retail sales. Now looming on the horizon is another event that has the bankers worried.

According to the Washington Post, the value of commercial mortgages is beginning to crumble, just as residential did. Bonds backed by loans made to office buildings, shopping centers and apartment complexes are quickly shedding value due to rising default rates and declining property values. Investors are shunning these bonds, even though offered at deep discount by banks, hedge funds and money managers.

The Washington Post claims a report this week revealed delinquent payments on two high-profile loans. One was for a California shopping center and the other for two Westin resorts in Arizona and South Carolina. Mike Kirby, director of research at Green Street Advisors, said “A lot of very foolish loans were originated between 2005 and 2007, and many of those loans begin to mature in 2010. You have a significant amount of debt maturing at that time and yet you don’t have a market to replace that debt.”

It is obvious that fear is now driving the market. People are grasping every tiny bit of news given out and acting on it, driving the market up and down on a veritable roller coaster ride. Today the stock market rallied after the announcement by the Obama camp of the new Secretary of the Treasury. If the market can make huge moves on something as simple as that, then the market is unstable and not worth getting into right now. It is my opinion that until everything hits bottom and then an attempt is made to really sort things out, then we will see nothing but doom and gloom. The Fed is flip-flopping on the TARP money, and I think that this is rightfully so. The Big 3 are going to them with hat in hand, yet are not making a difference. We can only hope that the new administration has some hard, quick answers for what is currently going on. I don’t think that we will see any stability at all until the new administration is in place. Until then, hunker down, folks!

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