Scion of legendary real estate billionaire family explains the slow-motion car crash happening in commercial real estate finance.
[youtube=http://www.youtube.com/watch?v=RVYK2_NBI9E]
Harrison LeFrak’s summary:
* There’s $3.5 Trillion of Commercial real estate debt
* $1.7 Trillion on books of community, regional & sub-regional banks
* $850 Billion in the CMBS market
* CMBS issuance went from “Hero to Zero” ($250B to less than $9B YTD)
* Both the holders of the debt and the quality of the debt itself are distressed
The problem will get really bad in 2010 because:
* Underwriting standards departed from reality in 2005-07 with 5-10 Yr loans made
* It could bring down more than 500 community/regional banks in the next 12 months
* Their commercial mortgages are not marked to market but waiting for maturity defaults
* There’s an $850B problem in the CMBS market w/ extension issues, everybody hands tied
* The shadow banking asset problem migrates onto the banking balance sheets, like RMBS