Goldman Analysts Warn of Next Crisis

Commercial real estate outlook even worse than subprime situation
By Kevin Spak,  Newser Staff
Posted Mar 3, 2008 4:10 PM CST
The building on Broad Street in New York's Financial District that houses brokerage firm Goldman Sachs is shown in this June 12, 2007 file photo. (AP Photo/Richard Drew, file)   (Associated Press)
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(Newser) – 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.