Is The Commercial Real Estate Market The Next Catastrophy For The US Economy?

While many economic forecasters are keying on the unemployment numbers, residential foreclosures and the growth of the US economy, there still remains a possible near replay of the residential housing crash. I'm talking about the commercial property and commercial real estate mortgage markets.

While the factors that led to the housing crash have and continue to be front and center in the main stream media, news coverage of the commercial property market is receiving minimal press. What many don't know is that while to a lesser degree, the commercial property and commercial mortgage markets (an over $6 trillion market) have gone through a very comparable period, as did the residential housing market.

The similarities were 1) Mortgages on commercial real estate were sliced and diced by Wall Street to the tune of over $700 Billion, 2) Commercial real estate values jumped considerably as a result of easy financing and the resulting demand and 3) Commercial mortgage requirements were eased significantly (but not as much as residential home loan requirements) during the boom. The differences are 1) A lot less speculation was made in commercial properties and 2) Practically all commercial mortgage loans are short term loans. While less speculation, often in the form of flipping or even attempted flipping is a good thing, short term loans more often than not are a bad thing so commercial property owners don't have the luxury of time to wait out the market or economical swings. On top of this fact, many of the big banks are not making commercial real estate mortgage loans except for the really big companies and those with ideal transactions.

Luckily, there are a few private lenders who are satisfying some of the void left after the big banks deserted this market but even so, there are a lot of stressed out business owners needing a commercial mortgage refinance loan. Many, however have neither the market value and equity in the property or satisfactory income for debt coverage to allow them to get a commercial loan. Quite a few others are getting hard money commercial loans to bridge the financing gap. If as many gurus forecast, the commercial market bursts anywhere near to what occurred in the housing market (and early indicators, such as delinquencies reflect this), it could be a colossal hit to an already delicate US economy. Only time will tell.


Ron Stone is a financial professional. His company assists businesses in securing hard money commercial loans. Learn more about these fast, streamline loan programs at his websites, Hard Money Commercial Loans or his video at Hard Money Commercial Loan