Now is the turn of the entrepreneurs in the construction industry to apply for state aid. By April, the federal government plans to approve a plan to refinance the office buildings and shopping malls on request failure. The size of the intervention is likely to be enormous: last week the governor of the Federal Reserve, Ben Bernanke, hinted at a credit of one million dollars.
The goal, he said, is to avoid an "impending crisis" that could spread well beyond the sign "To let" and closed shops in shopping malls. For now, the delinquencies in the commercial sector are few. But the number of empty offices is reaching record levels, according to some estimates, and banks are set with 1.72 trillion dollars in mortgages to the commercial sector, on 18 February.
Equally significant, many insurance companies and pension funds have invested in the sector and are now exposed to this recall.
"The issue is urgent," says Kenneth Rosen, professor at the University of California at Berkeley. "It 's important to take measures before we have another problem."
300 billion dollars of debt
This year about 300 billion dollars of debt will be refinanced by commercial banks. Given the declining economy, many real estate companies may not be able to survive without the refinancing of mortgages at better rates and better reflect current economic conditions. But banks are increasingly reluctant to refinance because of the collapse in property values.
Any help to contractors, some of which are famous for their extravagant lifestyle (think Donald Trump) would in any case part of the rescue of the banks.
"Banks are exposed to a significant extent," said Mr. Rosen.
In order to free up money for commercial real estate, the Treasury and the Federal Reserve to turn WOULD BE a federal program called Asset-Backed Term Loan Facility (TALF) next month. This program is already active for the financing of structured bonds linked to credit cards and loans for the purchase of motor vehicles.
Skyscrapers and pension funds
The concern about the housing market in the commercial sector covers not only banks but also insurance companies and pension funds that have invested in real estate or loans made to developers.
"Now, somehow, there is the potential because the financial crisis also a spill-insurance industry and pension funds, "says Jon Southard of CBRE Torto Wheaton Research, a research company in the property sector.
The impact of the recession is already being felt. The market for structured notes linked to mortgages, called Commercial Mortgage Backed Securities, has stopped since last July. Now, even the best-rated debt, for those companies seen as essentially risk-free, worth so little to make 11% to 12% interest rate.
The risk is that some big bank is forced to sell securities in its possession, depressing the market, said Mr. Southard. "The banks are not necessarily investors long term, "he adds.
Without new loans available to new commercial buildings," everything will be postponed, "said Rosen." There will be new construction in 2010 or 2011.
Many of the problems are caused by real estate moguls recession. Following the layoffs, companies are reducing the space needed to devote to the office. The space of empty offices at the end of 2008 rose 14% from a low of 12.5% \u200b\u200brecorded in mid 2007, according to Southard.
"But we can rise to 20% in 2011," he says. It would be a record of all time.
lower rent?
Following the increasing signs "rent" out by office buildings, rents will probably fall. "We expect a double digit decline in the next three years," says Southard.
An example of how the market is worse: the John Hancock Tower in Boston. Broadway Partners bought the tower of blue glass and silver for $ 1.3 billion in 2006. Today, based on rents and the estimates of employment in the metropolitan area of \u200b\u200bBoston, could be worth 575 million to 735 million dollars, says Victor Calanog, director of research at Reis, a real estate consulting firm in New York.
"When the building was purchased, was a very good year, and the price was reasonable, if the good years they lasted," says Mr. Calanog.
In Miami, the office rents have fallen to 2003 levels, says Tere Blanca, chairman and chief Blanca Commercial Real Estate Inc. The offices are empty 13% of the total.
Showcases empty malls
Problems have also appeared unexpectedly in the malls. In large shopping centers empty spaces have reached 7.1% in the fourth quarter of 2008, the highest level since 2000, according to Reis. "They are suffering because, for the first time in 17 years, consumption is decreasing.
When a mall loses a retailer, the effect can spread to other traders in the same area.
" The empty stores in a mall scare customers the same way as abandoned houses, "said Todd Sinai, professor at the Wharton School at the University of Pennsylvania in Philadelphia." So if a merchant does not sell stops can find new tenants. "
In some cases, the managers of shopping centers are defaulting on their mortgages. The manager of the Promenade at Dos Lagos in Corona, California, has missed two payments. But Joshua Poag, said via email that the company has no problems in his other eight centers trade. In fact, the default rate on commercial mortgages is only 1% at this time.
"The problem is to refinance," says Rosen
Opportunities through the rubble
least one real estate investor with no debt, the Gaedeke Group of Dallas, Texas, sees the current situation as an opportunity.
"We plan to make investments," said Belinda Dabliz, vice president of leasing. "There is much to be refinanced debt, and there is no way to be able to restructure."
But if the government assistance are not forthcoming, "we see a wave of defaults," says Rosen.
This means that the type of real estate entrepreneurs Mr. Trump and Mort Zuckerman, who lead a lifestyle of rich and famous, asking for help from the government?
"Strong hope is that each operator in the markets in trouble survive this crisis in some way, "says Calanog." The difficulty lies in ensuring that those who behaved wrongly, have lent, borrowed or paid too much, be penalized, otherwise we enter the realm of classical " moral hazard.
Real Estate Woes seep into malls, office towers
see also:
Insolvencies doubled in a year
Fundamentals of U.S. structured finance
Consequences of foreclosures: homes for sale at $ 1
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