When the commercial real estate market was hot, the sky seemed to be the limit, and increasingly complicated financing arrangements were common. Now the combination of economic crisis and credit freeze has exposed the market's precarious underpinnings, which resemble the pitfalls that brought the residential real estate sector to its knees. One analyst tells NPR: "I call it the commercial real estate of the subprime loan."
Overleveraged developers have been caught with their pants down as the rental market ices over and property values plummet. Residential credit has loosened slightly, but commercial borrowers are scrambling to cover short-term loans one developer compares to "a time bomb." Even developers with solid credit ratings are getting the cold shoulder. “You've got an absolute freeze going on in the credit markets,” says the developer.