Op-eds and Articles

A Simple Solution for America’s Looming Commercial Debt Crisis

By / 8.5.2013

As the housing sector continues its apparent recovery, some U.S. lawmakers are turning their attention to a looming crisis in the commercial real estate market, which is threatened by an avalanche of debt as loans made during the heady days of the early aughts start coming due over the next five years.

Reps. Kevin Brady, R-Texas and Joseph Crowley, D-N.Y., this week introduced a bill that would make it easier to finance this coming wave of debt. Following similar proposals in the Senate and President Obama’s budget, it would stop penalizing foreign investors in U.S. commercial property.

Here’s the problem they’re trying to solve: colossal amounts of real estate loans – totaling more than $1.7 trillion – are due to mature from now to 2018. Commercial mortgages are not like your average home mortgage. They aren’t fixed at a rate for 30 years. The standard commercial loan must be refinanced, paid down or sold after 10 years. What’s coming now is a huge wave of commercial debt that originated in the bubble years between 2003-2008.

Back then, real estate values were inflated and lending standards much looser. That means we can expect significant volumes of maturing mortgages to be in some sort of distressed state. In a 2010 Congressional oversight report, lawmaker’s panel served up this scary scenario:

A significant wave of commercial mortgage defaults would trigger economic damage that could touch the lives of nearly every American. Empty office complexes, hotels, and retail stores could lead directly to lost jobs. Foreclosures on apartment complexes could push families out of their residences, even if they had never missed a rent payment.

Continue reading at U.S. News & World Report.