An article in the Wall Street Journal is saying that when it comes to the commercial real estate market, history may be repeating itself based on the latest earnings reports from many U.S. banks. Mounting losses from loans for office space, housing complexes, strip malls, etc are heading towards record levels.
The current trend is reminiscent of the saving and loan crisis under the Reagan/Bush administration. According to RBC Capital Markets, late stage delinquencies on commercial real estate loans peaked at 6% at the height of the S & L crisis. And only a little more than 2% of outstanding loans became losses. Currently banks that have a significant portion of capital tied to properties in hard hit foreclosure areas are feeling the pinch in their portfolios.
With so many banks on the edge of trouble, commercial financing may be harder to come by. Some banks have already started to reduce their exposure in the market, while others are just starting to experience trouble in their commercial accounts. Could this be the start of a self imposed credit crunch in the commercial market?