Recent news of the automaker, biotechnology, and financial industries’ bid for some of that bailout goodness now has the debilitated commercial real-estate sector wanting to jump in the freeloading bandwagon so as to mitigate the industry and subsequent REIT exchange traded funds (ETFs).
Thousands of office complexes, hotels, shopping centers and other commercial buildings are looking at the possibility of defaults, foreclosures or bankruptcies, write Lingling Wei and Jon Hilsenrath for The Wall Street Journal.
A research firm, Foresight Analytics LCC, has calculated that $530 billion in commercial mortgages are up for refinancing in the next three years and $160 billion will be maturing in the next year. A major industry trade group, Real Estate Roundtable, predicts that more than $400 billion of the $3.4 trillion of commercial real-estate loans outstanding in commercial mortgages will be due through the end of 2009.
Commercial mortgages are commonly underwritten for five, seven or 10 years with large payments at the end, which are usually refinanced or forfeited to the lender. Delinquencies on commercial real-estate loans have been relatively low but recently jumped from 0.62% in September to 0.96% in November. Analysts say there is a possibility rates will climb to 2% by end of next year.
The industry is trying to anticipate a possible multi-billion dollar collapse by entreating to be included in the new $200 billion loan package that was intended to help investors finance purchases of securities backed by assets. The treasury has agreed to take the first $20 billion of any losses using funds from the previously approved $700 billion package.
Troubled commercial REIT ETFs that may benefit from possible resue:
- First Trust S&P REIT (FRI): down 43.6% year-to-date
- SPDR DJ Wilshire REIT (RWR): down 42.4% year-to-date
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.