Commercial Real Estate - The Real Deal

The numbers shared with the public are GROSSLY deflated. In Washington, D.C. - the most stable office market in the United States and perhaps the world (for now)a major portfolio comprising several million square feet is back in the hands of the lender(s).

A major European bank has also taken back another portfolio in the central business district of more than half a million square feet and expects a significant write off.

The losses above are in the hundreds of millions of dollars, perhaps more than a billion.

In Northern Virginia along the Dulles toll road there are more than 50 empty office buildings - many of which were constructed in the past several years.

These are but examples that are part of a larger problem - multiple times worse in other parts of the country.


Elizabeth Warren Warns About Commercial Real Estate Crisis, 'Downward Spiral For Small Business, Local Banks

Even as the economy shows signs of recovery, a government watchdog is warning that another financial crisis is coming round the bend -- and that the Treasury Department and financial regulators are not prepared to deal with it.

"There is a commercial real estate crisis on the horizon, and there are no easy solutions to the risks commercial real estate may pose to the financial system and the public," says a report issued Thursday by the Congressional Oversight Panel, the bailout watchdog led by Harvard Law professor and middle-class advocate Elizabeth Warren.

"The Panel is concerned that until Treasury and bank supervisors take coordinated action to address forthrightly and transparently the state of the commercial real estate markets -- and the potential impact that a breakdown in those markets could have on local communities, small businesses, and individuals -- the financial crisis will not end."

Over the next five years, about $1.4 trillion in commercial real estate loans will reach the end of their terms and require new financing. Nearly half are "underwater," meaning the borrower owes more than the property is worth. Commercial property values have fallen more than 40 percent nationally since their 2007 peak. Vacancy rates are up and rents are down, further driving down the value of these properties.

When the reckoning comes, it could threaten everyone from banks and pension funds to renters and small businesses -- and small banks could be particularly vulnerable.

Warren warned against government inaction.

"When commercial properties fail, the result is a downward spiral of economic contraction; job losses; deteriorating store fronts, office buildings and apartments; and the failure of the banks serving those communities," she said. "These are the same small banks that provide loans to the small businesses that create jobs and boost productivity. If hundreds more community banks go under the effect could be to dump sand in the gears of our economic recovery.