“On the commercial side, I think we are fairly early in the down cycle.”
-Matthew Anderson, a partner in Foresight Analytics
Floyd Norris explains the potential dollars involved in further CRE distress:
“EVEN as the economy may be starting to recover, banks across the country are confronting a worsening outlook for their construction loans, an area that boomed for much of the decade.
Reports filed by banks with the Federal Deposit Insurance Corporation indicate that at the end of June about one-sixth of all construction loans were in trouble. With more than half a trillion dollars in such loans outstanding, that represents a source of major losses for banks.”
I would challenge the notion that we are truly in a real recovery. We are still int he “less bad” phase, with most gains due to government intervention, not an organic recovery.
“At the end of June, $291 billion in [commercial] loans were outstanding, down only a few billion from the peak reached earlier this year. . . . Foresight Analytics estimates that 10.4 percent of commercial construction loans are troubled, but expects that to increase as the year goes on.
The definition of troubled loans used in the accompanying charts includes loans that are at least 30 days past due, as well as those on which the bank identified problems that led it to stop assuming that interest on the loans would be paid.”
Those folks who believe the “all clear” whistle has sounded may find themselves in unpleasant circumstances in a few short quarters . . .
click for larger chart
via the NYT
Construction Loans Falter, a Bad Omen for Banks
NYT, September 4, 2009
For Commercial Real Estate, Hard Times Have Just Begun
NYT, September 1, 2009