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Is commercial real estate a time bomb?
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| Contributor | particleman |
| Last Edited | particleman Apr 18, 2009 10:20am |
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| Category | Speculative |
| News Date | Saturday, April 18, 2009 04:00:00 PM UTC0:0 |
| Description | Bankruptcy is coming to the food court. And that's got to make you wonder if the commercial real estate market is a disaster waiting to happen.
General Growth Properties, the nation's second largest operator of shopping malls, filed for Chapter 11 protection Thursday morning. That makes General Growth (GGP) the biggest retail casualty yet of this recession, a downturn that also led to the bankruptcies of Circuit City, Linens 'N Things and Steve & Barry's.
Several U.S. companies could be affected by this development. According to General Growth's bankruptcy filing, one of the company's largest unsecured creditors is Bank of New York Mellon (BK, Fortune 500) -- although it is listed as a trustee for other creditors.
As this recession continues to drag on, there are legitimate worries that General Growth could be part of a larger trend. "Losses in commercial real estate will rise across the financial sector throughout the year," said Keith Hembre, chief economist with First American Funds in Minneapolis. Hembre said that banks have an estimated $1 trillion worth of exposure to commercial real estate.
That's about half as large as exposure to consumer residential loans -- but still a very significant risk for already bruised banks.
"Historically, commercial real estate is one of the last areas to experience a downturn," Hembre said. "Employment is the driver that determines occupancy." However, some investors believe that the commercial real estate market won't wind up completely melting down. For one thing, commercial real estate prices didn't get as out of whack with reality as residential real estate did. |
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