The Real Deal Miami

Banks’ fate worse than borrowers’ in commercial real estate market

October 19, 2009 04:26PM

As the commercial real estate sector continues to take a dive, it will be the banks, not the borrowers, who will find themselves in the most trouble, according to a Marketplace audio segment from American Public Media. Stuyvesant Town and Peter Cooper Village, an 11,000-apartment commercial property that sold for $5.4 billion in 2006, is now worth less than half of that and banks will feel the largest brunt if borrowers default. “A spike in commercial loan defaults could send the banks into another financial crisis,” said Chris Cornell, a commercial real estate expert with Moody’s Economy.com. “Since most loans take five years to mature and the worst of the bubble was ’05, ’06, and ’07, banks can expect the most trouble in 2010-2012,” added Cornell. In order for a recovery, banks will need to loosen lending again in order to extend loans, an action that will require billions in government aid, according to University of Pennsylvania real estate professor Susan Wachter. American financial institutions are also feeling stresses in the residential housing sector. More foreclosures are being filed on homes with jumbo loans, so banks carry more of the risk. “When these high-end homes foreclose, it’s on their balance sheets. That makes banks even more nervous to lend until the crisis clears,” said Whitney Tilson, a mutual fund manager.