More Bad News coming down the Pipe??!!

I keep reading articles that say commercial Real Estate is headed for a major train wreck, unless the financing for commercial properties can be worked out. Some companies are at the door of foreclosure and more will be, as more and more of the debt becomes due and can not be paid.

Here are a few excerpts from the Wall Street Journal:

'With the commercial real-estate industry bracing itself for the onslaught of hundreds of billions of dollars in maturing loans, the Treasury is considering issuing rules that will make it easier for property developers and investors and their loan servicers to restructure debt, according to people familiar with the matter.
Tax rules make it difficult for borrowers who are current on their payments to hold restructuring talks with the servicers of commercial mortgages that were packaged and sold as bonds. This lack of flexibility was one of the reasons cited by the management of mall giant General Growth Properties Inc. for its Chapter 11 bankruptcy filing in April.
At present, developers and investors complain that only those who are delinquent can talk to servicers of these bonds, named commercial-mortgage-backed securities, or CMBS. But now the Treasury is considering issuing guidance that would allow servicers to start talking about ways to avoid defaults and foreclosures sooner, possibly at least two years ahead of the maturity date of a loan, these people said. The Treasury guidance, which could be released within weeks, would essentially enable loan-modification talks to take place without triggering tax consequences, these people say.' by LingLing Wei and Kris Hudson

Another article mirrors the same train of thought:
This is from a staff writer on the Mercury Sun in the Silicon Valley, George Avalos. This article is specific to the San Francisco, Oakland and San Jose Area.

'A vast auto dealership is empty in Oakland, visible from the freeway. In Pittsburg, a big housing development looms over a downtown street, unfinished and vacant. Hotels in Brentwood and Oakland are isolated behind cyclone fences. A mammoth residential development is idle next to the Caldecott Tunnel.

These troubled projects all are mute testimony to a financial malaise that first sickened the housing market and has now infected a broader part of the wheezing regional economy.

During a half-year period stretching from October through the end of March, mortgages totaling $784 million have slumped into default for dozens of commercial or development properties, including some huge residential subdivisions, in the East Bay.

"The commercial real estate shoe has dropped, and it is sitting on the ground crying," said Christopher Thornberg, partner and economist with Beacon Economics. "This is a huge problem."

This new downturn is also a significant challenge for the economy generally. Undeveloped or partially built projects stalled by foreclosures or bankruptcy can weaken economic growth in a community. Existing projects that are in default can fail to attract retailers or new businesses to a city. Buildings that are delayed in getting off the ground because of financial woes portend fewer construction jobs.

Bottom line: The recession that began with sales of individual houses, then spread to banks, retailers and automakers, now has commercial real estate in its grip. This relapse for the economy has arrived just when the fallen residential sector has begun to stagger off the ground.'

The article goes on the state 'Compared with the October-through-December quarter of 2008, the pace of commercial property defaults accelerated during the January-through-March quarter of 2009, a six-month analysis shows. The survey done by MediaNews compiled data on delinquent mortgages with loan amounts of at least $1 million.'

That is in just one region of California, Other articles report the same thing happening across the nation.

Now would be a good time to get to know commercial mortgage brokers and bankers and investors with deep pockets. Build the relationship's that will bring you deals and money. Investors are always looking for a good deal. If they can come in a save the day and save money, they will happy campers. You will be to, if you can put the deal together.

We at the National Association of Commercial Real Estate Property Scouts (NACREPS) have been training people from all walks of life to be property scouts. Check us out on the web at http://www.nacreps.org