Commercial real estate industry asks for bailout

First the banking industry, then the automotive industry and now the commercial industry is asking for a piece of the federal bailout.

With a record amount of commercial real-estate debt coming due in the first quarter, some of the nation’s largest property developers are asking for federal assistance, according to a recent report in The Wall Street Journal.

A recent report by Deutsche Bank warns policymakers that thousands of office complexes, hotels, shopping centers and other commercial buildings are headed into defaults, foreclosures and bankruptcies.

With roughly $400 billion in loans coming due next year and virtually no credit available for borrowers to refinance, The Real Estate Roundtable is warning policymakers about the possibility of a wave of commercial real estate loan defaults in the coming year and years.

According to research firm Foresight Analytics LCC, $530 billion of commercial mortgages will be coming due for refinancing in the next three years, with about $160 billion maturing in the next year.

Credit, meanwhile, is practically nonexistent and cash flows from commercial property are slowing down.

Unlike home loans, which borrowers repay after a set period of time, commercial mortgages usually are underwritten for five, seven or 10 years, with large payments due at the end, the Journal reported.

A dozen large real estate trade groups have sent a letter to Treasury Secretary Henry Paulson, asking to be included in a new $200 billion loan program that was initially created by the government to salvage the market for car loans, student loans and credit-card debt.

The new facility for commercial real estate debt being proposed by The Real Estate Roundtable and others could be seeded by funds from the federal Troubled Assets Relief Program (TARP) established under the recently enacted Emergency Economic Stabilization Act (EESA), with additional leverage from the Federal Reserve, similar to the structure of the Term Asset-Backed Securities Loan Facility (TALF).

Roundtable board member William Rudin of Rudin Management Company noted in today’s issue of Commercial Mortgage Alert, "People are aware, but everybody is waiting for the new (Obama) administration to come in … We would argue that it’s better not to wait, but to get this on the table now."

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