Next Big Economic Headache: Commercial Real Estate

Kiplinger reports:

The commercial property outlook is woeful. Vacancies are rising; rents, falling; and prices, dropping. Most buyers can’t agree with sellers on terms. The few who do often aren’t able to secure credit. And it’ll get worse before it gets better for developers, owners, builders, lenders and investors.

The crux of the problem: an inability to refinance. An estimated $250 billion in loans will mature this year, with $300 billion more coming due in each of the next three years. With property values down 40% for some office buildings since the recession began, owners are in a bind. Worse, values are still eroding: By the end of 2010, they’re likely to lose an additional 10%.

Moreover, there’s much less credit available to lend. The mortgage backed securities market, which provided nearly half the credit for loan originations and refinancing as recently as 2007, has dried up. Now the job is left solely to banks. Those that are able and willing to lend want to do so at higher rates and for shorter terms. And they’re demanding increased equity from the borrowers. Robert Bach, senior vice president with Grubb & Ellis, says: “The big squeeze is on borrowers who took out loans from 2005 through 2007. They’ll find nowhere near the terms they got then.”

An article well worth your time.