New Report Doesn't Bode Well for Commercial Real Estate Owners

The Congressional Oversight Panel (COP) released its February oversight report, “Commercial Real Estate Losses and the Risks to Financial Stability,” which warns of an impending wave of commercial mortgage defaults similar to those seen with home mortgages. The report predicts that a high number of defaults could overwhelm an already-weakened economy. It urges the Treasury Department and banking regulators to develop a plan to address the problem before it hits full-force starting next year.

According to the report, between 2010 and 2014, about $1.4 trillion in commercial real estate loans will mature--almost half of which now are under water. While this could affect all banks, the COP is most concerned about community banks because they hold a disproportionate share of commercial real estate assets. The report suggests several ways to address the problem, including injecting more Troubled Asset Relief Program (TARP) money into some of those banks, creating a government program to buy up some of the bad assets, or creating a guarantee fund to absorb losses from the loans. However, the COP emphasizes that it is not advocating any single approach.