US commercial realty sector may fall off somewhat

It’s true that the US real estate sector is somewhat soaring after a long lull owing to the burnt of downturn but the same phenomenon has given rise to imbalanced developments as well. While on one hand vacancies in the commercial real estate sector are high, on the other hand there are also weak cash flows and all these do indicate that Federal Reserve Chairman Ben Bernanke’s warning this week about the commercial real estate market is convincing.

Nevertheless there may be some differences too and as per the appraisal of a Dallas-Fort Worth area economist, North Texas won’t undergo a repeat of the late 1980s. What did Ben Bernanke say then? Federal Reserve Chairman Ben Bernanke said in a speech this week that demand for commercial property is down, bringing about a “sharp deterioration in the credit quality of commercial real estate loans on the banks’ books and on loans that back commercial mortgage-backed securities.”

In addition, Bernanke made it clear that smaller regional banks and community banks having higher concentrations of commercial real estate loans may feel a deep pinch, and the market for securitization backed by CRE loans has pretty much closed. Bernanke warned of banks facing decisions on whether they will have to roll over maturing debt or foreclose on loans.

What are the considerations of analysts? There is economist Bernard Weinstein of Southern Methodist University who said, “I don’t think there’s any question commercial real estate will be struggling for the next year.” As indicated by him, both lenders and regulators are going to have to get a hold of some type of forbearance — or some type of program to cope with some of the troubles brewing for mortgage backed securities on the commercial side of the market.
“I don’t think the overhang of commercial real estate is as threatening to the economy or to financial institutions as all the residential mortgage backed securities, but it is still a big number,” he said.