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Why 2012 Will Be The Year For Commercial Real Estate Trade Volume
U.S. banks had a historic $1.3 trillion of commercial mortgages outstanding as of Sept. 30, 2009. Of that amount, about $60.5 billion, or 4.7%, were delinquent, according to Foresight Analytics.
About $650 billion in banks’ boom-time CRE loans are coming due over the next four years, with more than $150 billion maturing in 2012. About 43% of the loans due next year exceed the current value of the properties they cover, Foresight said. The percentage of underwater loans due in 2011 is 60%, and the figure rises for each year thereafter.
Even if the property is cash-flowing, when it comes time to refinance, the borrowers will be stuck, barring an “extend and pretend” scenario on an exponential level. One lucky beneficiary of such largesse here in New York: Click here.
So long as interest rates stay close to zero for banks, the economic climate encourages them to do so. This is easier for local and regional banks to execute because they typically engaged in balance sheet lending, where the loan stayed on their books. For larger banks that sold their loans off in a million different tranches, getting all tranch holders to agree will be much more difficult to execute.
If you look at the chart below, 2012 will be the peak year at which commercial loans become due. (2011 will be the peak year for residential mortgage resets. Commercial real estate lags behind residential real estate trends by about 12-18 months.) If commercial property owners start throwing their keys to uncooperative lenders en masse, and inflation propels interest rates, then this will be year that all hell breaks loose.
Set your clocks for real estate trading madness in 2012.
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Check out what others are saying about this post...[...] January, 2010, Multifamily Investor blogged about how 2012 would be the year that New York City multifamily trading volume would explode. About $650 billion in banks’ boom-time CRE loans are coming due over the next four years, with [...]