Severe Weather Warning for Commercial Real Estate: New TARP Not the Answer

James Gattuso / February 11, 2010

The Congressional Oversight Panel (COP), the watchdog board created by Congress to oversee the TARP program, yesterday issued the equivalent of a severe weather warning for commercial real estate markets. Like the residential market before it, the markets for retail, apartment, and other business properties are facing a wave of defaults which, says the panel, “would trigger economic damage that could touch the lives of nearly every American.”

The numbers are grim. According to the COP, over the next four years $1.4 trillion in commercial real estate loans will come due, of which half are currently underwater, sunk by a 40 percent drop in values since 2007. Total losses could be some $300-400 billion. These losses would be in large part borne by mid-sized and community banks, who tend to invest most heavily in to the commercial market.

Certainly, the negative effects of such a meltdown would be significant. The question, however, is how to address it. The COP admits that there is no easy answer.
(more…)