Real estate ‘time bomb’ feared

Alan Zibel

Associated Press

The recession and credit crisis have halted construction of Boyd Gaming�s Echelon, a multibillion-dollar resort that was being built in Las Vegas.

Locally

Some Fort Wayne

office spaces have been filled this year, said Dan A. Dickey, president and co-owner of NAI Harding Dahm.

On Thursday, he estimated vacancies in Class A suburban buildings � newer properties offering many amenities outside downtown � have dropped to 17 percent or 18 percent. His firm estimated 28 percent of those properties were vacant last year.

Dickey said the Class B suburban property vacancy rate for older buildings has remained around last year�s level of 21 percent.

The downtown office vacancy rate tends to be higher, but that area also has seen some new tenants moving in, Dickey said. Few offices are being built because of the recession, so companies are renting available space.

�We�re really kind of encouraged,� he said.

WASHINGTON – Owners of shopping malls, hotels and offices are defaulting on their loans at an alarming rate, and the commercial real estate market is not expected to hit bottom for three more years, industry experts warned Thursday.

“The commercial real estate time bomb is ticking,” said Rep. Carolyn Maloney, D-N.Y., who heads the congressional Joint Economic Committee.

Delinquency rates on commercial loans have doubled in the past year to 7 percent as more companies downsize and retailers close their doors, according to the Federal Reserve. Small and regional banks face the greatest risk of severe losses from commercial real estate loans.

The commercial real estate market’s fortunes are tied closely to the economy, especially unemployment, which hit 9.5 percent in June.

Funding for commercial loans virtually shut down last year as the financial system unraveled. Industry executives say financing is still extremely difficult to obtain, even for financially healthy properties.

Losses in securities backed by commercial property loans could be as high as $90 billion in the coming years, said Deutsche Bank analyst Richard Parkus. He said even more losses – up to $140 billion – are expected from construction loans made by regional and local banks, rather than those sold as securities held by investors.

“We believe the bottom is several years away,” Parkus told lawmakers.

Industry groups are pushing for the government to launch government programs to support commercial real estate loans.

� Jenni Glenn, The Journal Gazette

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