Will we now see a commercial real estate market collapse?
*Financial Times, by Daniel Pimlott and Gillian Tett, February 5, 2008:
"There is a growing risk of defaults on loans on commercial property
this year, in a trend that could spill over into tumbling values and
create more jitters in the credit world, analysts and bankers warn.
US property companies that took out big short-term loans to finance
acquisitions in the past couple of years at low-interest rates are now
struggling to refinance this debt, as banks curb lending and commercial
property prices fall.
In recent days, Harry Macklowe, the New York developer, has failed to
refinance $5.8bn in short-term loans he used to buy seven Manhattan
office towers from Equity Office Properties last February. Deutsche
Bank, which provided the loan, has taken control of the buildings and
will put them up for sale, a person familiar with the matter said.
Analysts warn of a pattern that could spread. US commercial property
prices have fallen 10 per cent in some markets since August, after
rising more than 90 per cent since 2001, according to Real Capital
Analytics.
'For [recent] loans coming to maturity this year...it will be very
difficult to acquire refinancing,' said Sam Chandan, chief economist at
Reis, a property re-search company.
Signs of growing stress also exist in the UK commercial property
sector. Tomorrow, UK group British Land is expected to announce a sharp
writedown in the value of its commercial property. The Bank of England
highlighted its unease in its recent quarterly bulletin, noting that
'commercial property prices fell sharply' in recent months, and
'returns on commercial property slowed significantly.'
Most analysts think the scale of problems building in the commercial
property sector are far smaller than in the subprime loans market."
*This information is solely a highlight of the opinion of a third-party publication and is incomplete. Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.
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