US commercial property sector awaits federal assistance anxiously

The situation is out of the frying pan into the fire! This is perhaps the most apposite sentence that can be applied to describe the crumbling US commercial property sector. For months, if not more, there was an apprehension (perceived from the attitudes of stakeholders) of an eventuality but not so fast. But now it seems that the commercial property industry of USA is out in the street with the begging bowl and it will meet the doomsday if there is no federal assistance. It has come to the knowledge that the situation is so grim, thanks to the intensification of credit crisis, that the business organizations including office blocks, hotels and shopping centres may face bankruptcy shortly.

This became clear from the letter (SOS) of representatives of America’s real estate bodies to Mr. Henry Paulson, the US Treasury Secretary, which contained words of frustration and the desperate appeal for federal assistance. It is to be noted that Mr. Paulson managed to secure $700 billion of taxpayer funds in October to help to bail out Wall Street banks. What is more the White House agreed, on the very last week, to lend $17.4 billion (£11.7 billion) to General Motors and Chrysler, the internationally acclaimed car manufacturers, to save them from impending disasters.

Will the federal government do the same to enliven the commercial property sector? Well, though the pertinent industry is hopeful, many are still wavering with suspicion. But there is no other way also. According to the estimation of Foresight Analytics, the research firm, nearly about $530 billion of commercial mortgages are due to be refinanced within three years. But $160 billion will expire within the next 12 months and the date of refinancing the debt bulks large. What can be done else since the American credit markets appear to be frozen?

This crude reality was also accepted in the letter (sent to Mr. Paulson) which stated, “We believe there is insufficient systemic capacity to refinance expiring, performing commercial real estate loans. For many borrowers, [credit] is not available.”

According to the latest reports, both US Treasury and the US Federal Reserve have agreed to take into account the subject of assisting the commercial property market with loans. Nevertheless, according to many, this is just the beginning.