Empty offices leave landlords high and dry

The Chicago Tribune reports:

While much of the subprime mortgage problem has focused attention on the residential market, Chicago-area office landlords are now feeling the pain as the problems spread into various channels of the commercial property industry.

Gone are the days of frenzied commercial property sales with investors buying buildings at high prices, raising rents and flipping them at even higher prices.

Now, rather than anticipate big sales, commercial landlords are worrying about how to pay the debt on buildings that are generating less income than just a few months ago.

It's a national problem but one that is felt more acutely in Chicago, where rents were already low and where new office space threatens to push down prices even more.

This dynamic has caught squeezed office owners off guard.

With leasing sluggish, especially in the northwest suburbs, lowering rents to attract tenants will lower properties' financial performance and threaten property values. This makes it difficult to pay off loans that in recent years have covered as much as 95 percent or more of a building's cost. As rents diminish and credit rating agencies lower the extravagant asset value assessments of recent years, an owner could be holding a building that is worth less than the amount owed on it.

You've got to wonder about the bankers that gave loans, in a town like Chicago, which is losing population and jobs since the beginning of this decade.This is another fallout from the sub-prime easy credit fiasco.No word yet on whether Senators Dodd and Schumer want to bailout these sorts of real estate developers.