Post by jeffolie on Nov 14, 2007 14:44:03 GMT -6
The Next Shoe to Drop in the Credit Meltdown: Commercial Real Estate and Its Massive Forthcoming Losses
Nouriel Roubini | Nov 14, 2007
While everyone’s attention is concentrated on subprime and other residential mortgages, as first reported by this blogger this past July the next shoe to drop - in the mortgage and credit crunch saga - will be commercial real estate (CRE); indeed investors’ worries and panic are now shifting towards CRE and its related securitized products (CMBS and CMBX).
Many of the same excesses that were observed in subprime – poor underwriting standards, loose and excessive lending to marginal projects – are also observed in CRE.
And since the total value of the stock of securitised commercial property loans was $804bn (at the end of the first quarter of 2007) the coming bust of CRE will lead to another round of massive losses for the banks who made these loans and the investors who bought these toxic mortgages. So expect another saga of collapsing construction, falling prices, rising default and deliquencies and massive losses for the mortgages and mortgage backed securities related to CRE. If CRE prices will fall – as expected by some – by at least 15%, the losses from CRE investments could easily be above $100 billion, possibly as high as $150 billion. Add those CRE related losses to the losses in the $300 to $500 billion range now estimated by RBS and Deutsche Bank for subprime and other residential mortgages. The financial markets massacre is just starting and a generalized liquidity and credit crunch will become full blown in the next few months.
www.rgemonitor.com/blog/roubini/
Nouriel Roubini | Nov 14, 2007
While everyone’s attention is concentrated on subprime and other residential mortgages, as first reported by this blogger this past July the next shoe to drop - in the mortgage and credit crunch saga - will be commercial real estate (CRE); indeed investors’ worries and panic are now shifting towards CRE and its related securitized products (CMBS and CMBX).
Many of the same excesses that were observed in subprime – poor underwriting standards, loose and excessive lending to marginal projects – are also observed in CRE.
And since the total value of the stock of securitised commercial property loans was $804bn (at the end of the first quarter of 2007) the coming bust of CRE will lead to another round of massive losses for the banks who made these loans and the investors who bought these toxic mortgages. So expect another saga of collapsing construction, falling prices, rising default and deliquencies and massive losses for the mortgages and mortgage backed securities related to CRE. If CRE prices will fall – as expected by some – by at least 15%, the losses from CRE investments could easily be above $100 billion, possibly as high as $150 billion. Add those CRE related losses to the losses in the $300 to $500 billion range now estimated by RBS and Deutsche Bank for subprime and other residential mortgages. The financial markets massacre is just starting and a generalized liquidity and credit crunch will become full blown in the next few months.
www.rgemonitor.com/blog/roubini/