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Report Places Value of U.S. Distressed Commercial Real Estate at $187.4 Billion

April 15, 2010

Our Los Angeles County commercial real estate loan modification lawyers were interested to see a recent report on just how troubled the commercial real estate market may be. GlobeSt.com reported April 12 that Delta Associates, a private data analysis firm, has placed the total value of distressed commercial real estate in the United States at $187.4 billion. That number includes the value of REO properties, properties in foreclosure and properties that may be there soon. Furthermore, the total value has jumped by 10% since January and 33% since October. The numbers, compiled from data provided by Real Capital Analytics, put the Los Angeles and Orange County region as the third most troubled, after Manhattan and south Florida.

The rate at which distressed properties are increasing has slowed, the report notes. In the first half of 2009, Delta Associates found that the number of distressed properties was doubling every three months. The report says the slowdown is in part because lenders have become more willing to "pretend and extend," which means granting extensions in the hope that the borrower will regain its ability to pay off the loan. However, more trouble lies ahead. In 2010 and 2011, $600 billion in CRE loans will come due, Delta Associates wrote, and not all borrowers will be able to pay them back. If that happens in large numbers, the report says, experts think as many as 350 banks could fail. The sector of the CRE market with the largest amount of distressed properties is retail, which has $41.7 billion in distressed properties. However, apartment buildings are slipping into trouble the fastest, gaining 14% since January.

As Torrance commercial real estate loan modification attorneys, we think this is bad news for the economy as a whole as well as CRE companies. If Delta Associates is right that more distress is coming this year, the slowdown in the growth of distressed properties may be nothing but a lull. If foreclosures pick up again, real property owners will certainly suffer, but so will the lenders they cannot afford to pay back. That could trigger a loss of access to capital across all businesses. As with residential mortgages, some of these CRE loans were undoubtedly high-risk loans made while the market was high. Now that the economy has crashed, tenants have disappeared and property values have dropped, the results of those bad investments have the potential to hurt everyone, not just the people who made them.

Like homeowners, owners of commercial properties can try to negotiate a loan modification with their lenders. Howard Law PC can help them do that. Commercial loans are suffering for many of the same reasons that residential mortgages suffered during the housing crisis. Both types of real estate have seen steep drops in value after a "bubble," which has led to many properties being underwater. However, CRE companies don't typically have 15 to 30 years to pay off loans, because their loans come due in just a few years. That means they can't simply wait out the market. Our Costa Mesa loan modification attorneys have negotiated residential loan modifications since early in the housing crisis, and we're proud to say that we have helped many homeowners make changes that allowed them to keep their homes. We believe we can do the same for CRE companies trapped by a bad investment or a bad economy.

If you're stuck with a commercial real estate loan that the lender refuses to consider modifying, you should call Howard Law for help. To set up a free consultation, call us today at 1-800-872-5925 or send us an email through our site.