According to a report released by Foresight Analytics LLC and Trepp LLC a record number of commercial real estate loans are coming due in Texas and nationwide within the next three years. These loans must either be paid in full, renewed or refinanced. But with the freeze on lending many malls, offices, warehouses and other properties could default or go bankrupt.
Over $27 billion in commercial loans in Texas are at risk for default in 2011 because of the credit crisis that doesn’t seem to be getting better; but only worse. Texas also has $9 billion in commercial mortgage-backed securities, the third-largest amount after California and New York. These securities would take a major hit if commercial real estate began to experience widespread defaults, foreclosures and bankruptcy at the level we’ve seen in the residential markets.
Right now banks are not willing to negotiate these commercial loans which for the most part don’t have extension clauses that would help borrowers prevent foreclosure. The banks are currently demanding that commercial real estate borrowers pay off the loans in full or refinance them. If the borrowers fail to refinance or pay in full, the banks are threatening to foreclose; but there are so many loans outstanding and due to mature in 3 years that large amounts of defaults and foreclosures could completely cripple the financial system.
Massive defaults and foreclosures in commercial real estate could also mean more bad news for the average consumer. Commercial real estate employs over 9 million people nationwide and the tax revenue from these properties is often the foundation of how we fund public services, such as schools, police, firemen and infrastructure. An avalanche of foreclosures and bankruptcies in the commercial real estate markets could send the jobless rate skyrocketing and create urban blight with empty malls, abandoned office buildings and dilapidated commercial centers.
