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October 22, 2009 (LPAC)—The reporting of commercial real estate problems follows the same pattern as other bank losses: hide them when you can; understate them when you can't. The reportage, by the banks themselves and by the press, tends to be piecemeal and anecdotal, rather than comprehensive and systematic. Keep that in mind, as you review the following items:

* 71 of the first 95 bank failures in 2009 were caused by non-performing commercial real estate, according to the Jones Day law firm in Atlanta.

* Morgan Stanley, the giant investment bank turned bank holding company, may have to give up its Crescent Real Estate Equities unit, which it bought for $6.5 billion at the top of the market in 2007. Crescent held some 54 office buildings, resorts and housing projects, upon which Morgan Stanley has already taken some $700 million in write-downs. To buy the properties, the bank borrowed $2 billion from Barclays, a loan that came due in August but has been extended until Nov. 2. Speculation is that the bank may turn the portfolio over to Barclays in lieu of repayment of that debt. Morgan Stanley is a big real estate speculator, its MSREF fund management arm raised $14 billion in 2006 and 2007 to buy real estate, according to the Wall Street Journal. MSREF investors have taken some big hits. For example, the California State Teachers Retirement System (Calstrs) lost 80% of the $400 million it put into one of the MSREF funds, and the $137 million it put into another is worth just $300,000.

* General Electric, which has been a significant beneficiary of bail-out funds, also has big real estate troubles. GE Real Estate, part of GE's GE Capital unit, has an $84 billion real estate portfolio—about 15% of GE Capital's assets—and faces big write-downs as much of its portfolio was bought at or near the peak of the real estate market and is not worth what the company paid for it.

* Defaults on commercial real estate totalled $110 billion—6% of total loans backed by commercial real estate—in the second quarter, and may hit $170 billion by the fourth quarter, according to Foresight Analytics, which says that delinquency rates are rising substantially.

* The Term Asset-Backed Securities Lending Facility (TALF), one of the alphabet soup of bail-out facilities created in a vain attempt to ignore reality, begins its fourth round of lending Oct. 21. TALF lends money to buyers of legacy commercial mortgage-backed securities, spending $2.3 billion in August, and $1.4 billion in September. TALF loans are limited to purchases of top-rated securities (as if any CMBS deserved such a rating!), a limitation that will be cast aside for Treasury's new Public Private Investment Program (PPIP), announced in March. All of these programs fall under what Treasury should call the Corrupt Rehabilitation of Assets Program, or CRAP.