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Commercial Real Estate May Set Off 2nd Crisis

Another mortgage-backed securities market gets into trouble

By Jason Farago,  Newser Staff

Posted Aug 31, 2009 7:27 AM CDT

(Newser) – Just as the economy starts to recover, a second mortgage disaster may be looming. The commercial real estate sector is tanking, with many properties unable to generate enough cash to make mortgage payments. Lo and behold, those commercial mortgages have been sewn into securities—comparable to the packages of home mortgages that set of the financial crisis last year—in a $700 billion market where delinquency rates are skyrocketing.

As the Wall Street Journal reports, a commercial mortgage-backed security combines debt on several dozen properties, with big banks like Wachovia and Wells Fargo brokering transactions between borrowers and investors. Banks have so far been able to keep losses down by extending debt to borrowers, so long as the properties are bringing in a bit of cash. But barring a substantial uptick in hiring and shopping, commercial real estate is in trouble—and banks could be, too.

Manhattan West, a stalled condo project in Las Vegas. Even as the housing market starts to recover, fortunes for commercial real estate look increasingly grim. That could spell trouble for banks.
Manhattan West, a stalled condo project in Las Vegas. Even as the housing market starts to recover, fortunes for commercial real estate look increasingly grim. That could spell trouble for banks.   (AP Photo/Jae C. Hong, file)
Loan defaults in the worst commercial real estate market in decades have created tens of billions worth of distressed properties across the nation.
Loan defaults in the worst commercial real estate market in decades have created tens of billions worth of distressed properties across the nation.   (AP Photo/Mark Lennihan)
The delinquency rate on commercial mortgage-backed securities has gone up sixfold in a year.
The delinquency rate on commercial mortgage-backed securities has gone up sixfold in a year.   (©tnarik)
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COMMENTS
Showing 3 of 5 comments
Spudsy
Sep 2, 2009 3:26 AM CDT
Time to get back into cash for the ole 401k.
odowd80
Aug 31, 2009 1:53 AM CDT
I'd give you 10 thumbs up for this comment if I could. This story doesn't fit into the Republican talking points yet, but I'm sure they'll find a way to blame Dems very quickly.
Stuart
Aug 31, 2009 1:46 AM CDT
But wait - all my Republican friends tell me the reason for the economic mess we're in is that poor folks bought homes they couldnt afford and thats all because of Democratic legislation. Did the Democrats make rich companies over finance shopping centers and office buildings too?

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