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Commercial Real Estate Collapse Bigger than Subprime Implosion – Why is the Market Ignoring the $3.5 Trillion Commercial Real Estate Market Implosion?

02.14.10

Commercial Real Estate Collapse Bigger than Subprime Implosion – Why is the Market Ignoring the $3.5 Trillion Commercial Real Estate Market Implosion?

Posted by mybudget360

Most people that follow real estate even at a cursory level have heard of the problems in commercial real estate. The enormous $3.5 trillion market in commercial real estate (CRE) has deep and profound problems. At the peak CRE was estimated to be valued at $6.5 trillion. Today the value is closer to $3.5 trillion or closer to the loan amount outstanding. This market is now sitting in a zero equity position. In fact from market trends it is very likely that much of CRE bought during the last few years is significantly underwater. This trend is a few years behind the residential housing bust that shocked the markets into record declines. Why is the market not reacting as negatively to the bust in CRE as it did to residential housing?

Commercial and construction loans combined are bigger than the entire subprime market and CRE values have now fallen by 43 percent from their peak across multi-family units, hotels, and retail space. And with the CRE collapse there is a harder time selling off this space if there is no economic demand for certain spaces. You also have a smaller pool of borrowers looking for retail space. Take for example retail space near empty suburban housing divisions. With the busted homes if you lower prices enough, there will be a market created at a certain point. Yet this takes time. But with commercial real estate you may have no market at any price. Much of the CRE space is used as a business. With no business there is no need for CRE. So we have a giant $3.5 trillion market of loans that are largely toxic but the market seems to be ignoring this. Take a look at the combined CRE collapse from data collected by MIT: …..

read more at http://www.mybudget360.com/commercial-real-estate-collapse-bigger-than-subprime-implosion-%e2%80%93-why-is-the-market-ignoring-the-3-5-trillion-commercial-real-estate-market-implosion-pricing-in-another-bailout/