Commercial Real Estate REALLY Is the Next Big Crisis

On August 10, 2009 I posted an article asking readers if commercial real estate was the next big crisis. I spent a lot of time writing that article because there wasn’t a lot of reliable information on the commercial real estate situation available.

Interestingly, it turns out that we were ahead of most of the major media with this blog post. And, tooting my own horn, the video on my YouTube channel is the most-watched video, and the blog post has received the most comments of any blog post on the site.

Furthermore, I have it on pretty good authority from a source inside the Treasury (who will remain anonymous because they didn’t want to get into trouble. Makes us sound important, doesn’t it?) that the Treasury is more worried about commercial real estate than most people, even so-called real estate experts, realize. I suspect that there isn’t much information out there because the recession is supposedly over (or we’re all tired of hearing all the bad news!)

The Fed probably learned a lot from the residential mortgage crisis and it won’t be caught unawares this go round, which explains Plan C and the easing of the rules for restructuring commercial mortgage backed securities.

This week, the Wall Street Journal reported that the Fed has released new rules that make it easier for distressed property owners to restructure loans that were packaged by Wall Street firms and sold as securities. The WSJ says that most people in the industry were happy with the new rules, but others warned it would be problematic, especially for the servicers of the securities who will be under pressure from borrowers and competing classes of investors.

The IRS also helped this week by issuing new rules that will give servicers some wiggle room in negotiating with borrowers on performing loans that may not be due for some time. The new rule applies to all loan modifications that were made after Jan. 1, 2008.

Finally, for a more personal spin on the commercial real estate crisis, check out this story from Slate.com about a guy names Scott Lawlor and his company, Broadway Partners’ acquisition of Boston’s Hancock Tower and subsequent default on the loan in January 2009.

The article’s author says that Lawlor has become the whipping boy for the commercial real estate crisis, despite the fact that he was doing the same thing many other commercial real estate players were doing before the credit markets dried up.

I wonder how many more Scott Lawlors are out there.

It’s interesting to me that commercial real estate is a lagging indicator of economic problems in the country – it was still going strong when the problems with residential mortgage began. I don’t think anyone (except maybe Josh) thought that the recent economic problems were going to be as bad and last for as long as they did. Until jobs are created, commercial office space demand will remain low, creating a drag on the economy.

Clearly, we have a big problem on our hands. My bet is on another round of bailout money for the coming crisis in commercial real estate. The Treasury’s Plan C, a pre-emptive program, won’t be enough to stop a big wave of loan defaults, bankruptcies and foreclosures.

If you need help renegotiating a commercial loan modification, please contact me. We have attorneys in our network who can help you out. As I mentioned before, I just did a commercial loan audit and found some problems with the paperwork. As it turns out, residential and commercial lending guidelines have more in common than you might think.
If you offer commercial loan modification services, we’d love to hear from you – I’m open to a guest blogger who wants to explain how it works to our audience. Please comment or send us an e-mail.