Commercial real estate could be the next victim of the current economic downturn, and if it is, expect it to cause another full-fledged crisis, the Wall Street Journal reports. Commercial real estate values could fall as much as 26% over the next 2 years, Goldman Sachs analysts predict, leading to another round of huge write-offs and creating "a significantly longer tail than subprime."
The analysts expect the big banks to write down $7.2 billion in commercial loans this quarter. Even if it does outstrip the subprime crisis, the eventual damage won’t come in such quick, headline-grabbing bursts. Subprime loans had mostly been securitized, leading to sudden market wipeouts, while banks keep the lion’s share of their commercial loans.