According to a front-page article in today's edition of The Wall Street Journal by Lingling Wei and Jon Hilsenrath some major owners of commercial real estate are seeking government assistance for refinancing.
The article said that a recent letter sent to Treasury Secretary Henry Paulson by "a dozen real estate groups, painted a bleak scenario: 'Right now, we believe there is insufficient systemic capacity to refinance expiring, performing commercial real estate loans.'"
"'We've been urging Washington to put this as one of the top priorities in dealing with the economy,' says Steven Spinola, president of the Real Estate Board of New York, underscoring the need for the government to help spur commercial property lending either directly or indirectly," the article continued.
The article listed William Rudin, whose family is a large Manhattan office-building owner, Stephen Ross, chief executive of The Related Cos., a major U.S. developer, and Steven Roth, chief executive of office and retail landlord Vornado Realty Trust as among those making the lobbying effort.
They are warning, the article said, "that the approaching surge in commercial mortgages coming due poses another major threat to the global financial system, which already is on life support. With rent prices falling and vacancies rising due to the weakening economy, delinquencies on commercial mortgages already have begun to rise sharply."
In recent years, speculative commercial construction has been limited, the article noted, but "a huge volume of loans are coming due and some of the few institutions that were still making loans are retreating from the market."
"While commercial real-estate developers restrained themselves during the boom years when it came to speculative development, property investors bid up the prices of office buildings, malls and other projects to record levels assuming rents and occupancies would keep rising. With cash flows now falling, a growing number of developers are having a tough time repaying their debt. In cases where owners need to sell buildings to satisfy loans, the current environment makes that difficult. A revitalized lending climate is necessary, they say, to keep them afloat."
"To head off some of the impending pain, the industry is asking to be included in a new $200 billion loan program initially created by the government to salvage the market for car loans, student loans and credit-card debt. This money is intended to go directly to help investors finance purchases of securities backed by these assets. If commercial real estate is included, banks might have an incentive to make more loans to developers since they'd be able to repackage and sell them more easily to investors with the assurance of government backing."
The article said that a recent letter sent to Treasury Secretary Henry Paulson by "a dozen real estate groups, painted a bleak scenario: 'Right now, we believe there is insufficient systemic capacity to refinance expiring, performing commercial real estate loans.'"
"'We've been urging Washington to put this as one of the top priorities in dealing with the economy,' says Steven Spinola, president of the Real Estate Board of New York, underscoring the need for the government to help spur commercial property lending either directly or indirectly," the article continued.
The article listed William Rudin, whose family is a large Manhattan office-building owner, Stephen Ross, chief executive of The Related Cos., a major U.S. developer, and Steven Roth, chief executive of office and retail landlord Vornado Realty Trust as among those making the lobbying effort.
They are warning, the article said, "that the approaching surge in commercial mortgages coming due poses another major threat to the global financial system, which already is on life support. With rent prices falling and vacancies rising due to the weakening economy, delinquencies on commercial mortgages already have begun to rise sharply."
In recent years, speculative commercial construction has been limited, the article noted, but "a huge volume of loans are coming due and some of the few institutions that were still making loans are retreating from the market."
"While commercial real-estate developers restrained themselves during the boom years when it came to speculative development, property investors bid up the prices of office buildings, malls and other projects to record levels assuming rents and occupancies would keep rising. With cash flows now falling, a growing number of developers are having a tough time repaying their debt. In cases where owners need to sell buildings to satisfy loans, the current environment makes that difficult. A revitalized lending climate is necessary, they say, to keep them afloat."
"To head off some of the impending pain, the industry is asking to be included in a new $200 billion loan program initially created by the government to salvage the market for car loans, student loans and credit-card debt. This money is intended to go directly to help investors finance purchases of securities backed by these assets. If commercial real estate is included, banks might have an incentive to make more loans to developers since they'd be able to repackage and sell them more easily to investors with the assurance of government backing."
Architecture Critic
Carter Horsley
Since 1997, Carter B. Horsley has been the editorial director of CityRealty. He began his journalistic career at The New York Times in 1961 where he spent 26 years as a reporter specializing in real estate & architectural news. In 1987, he became the architecture critic and real estate editor of The New York Post.
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