A number of banks in the United States are worried about potential
defaults on their outstanding loans in the commercial real estate
market. According to articles on PropertyWire.com and Bloomberg, the country’s
10 biggest banks have a total of $327.6 billion in commercial
mortgages, which could prompt a wave of defaults as a result of
increased office vacancies and bankruptcy of retailers. A number of office buildings purchased in New York City during 2006 and
2007 have great exposure to potential defaults due to a combination of
increased vacancies and significant reductions in
office rents. With office rents dropping by at least 30 to 40 percent,
industry leaders are worried that these properties will not be able to
meet debt service resulting in possible bankruptcy or foreclosure. Real estate research firm Reis projects a tripling of the default rate,
which would result in losses of about 7 percent of the total unpaid
balances. [more]