Is Panic About to Hit the Commercial Real Estate Sector?

November 22, 2009 (LPAC)—In what is a surprise to only those that failed to listen to Lyndon LaRouche's forecast of a worsening phase shift in the economic crisis to begin in October, there is now increasing panic about the crashing commercial real estate market.

Stuart M. Saft, a partner at the international law firm of Dewey and LeBoeuf LLP, in a column posted on Forbes.com on Nov. 19, reports that at least $1.3 trillion of commercial real estate financing comes due between now and 2013, but less than half of that can be refinanced. He notes that in Manhattan, office rents in prime areas are half of what they were in 2007. Saft is in a total panic about all this. "The commercial real estate market is on its last legs, and unless drastic actions are taken, the effects on the broader economy will be catastrophic," he writes. But the measures that he demands to address the problem amount to reconstructing the bubble as it existed before the crash.

Saft's conclusion about the impending doom was echoed at the Reuters Global Finance Summit in New York this week. Reuters reports that office buildings and other commercial real estate financed during the credit bubble "will generate hurricane-scale losses for the banks," according to financial services executives who addressed the conference. Howard Lutnick, chief executive of Cantor Fitzgerald, noted that all the equity invested in almost every transaction during the peak bubble years of 2005-2007 has been wiped out. The problem is illustrated by a report, this week, by the real estate firm Grubb and Ellis, which shows some Washington, D.C. area business corridors experiencing commercial property vacancies of 25-34%.

In St. Louis, the St. Louis Federal Reserve Bank reported, this week, that 19 of 78 banks headquartered in the region are running at a loss. Combined, the 78 banks have lost $239 million so far, this year, but most of that is accounted for by one bank, First Bank, which lost heavily in California real estate loans and on lending in Chicago.

In Boston, the Boston Business Journal reports that the concentration of real estate loans at several Boston-area banks are such as to attract extra scrutiny from bank regulators. The Hingham Institution for Savings has exposure equal to 447% of total capital, as of September 30, and the Central Cooperative Bank of Somerville had over 500% exposure.

Is this the "recovery" that Obama is talking about?