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
Thank you very much for this nicely written entry.
Can you say Depression? No real recovery in sight and comodity prices are also going to rise.I’ts a big “Do-Do” sandwich and we all have to take a bite…..
I really enjoyed reading this post, keep up making such interesting articles!!