How Will Commercial Capital Fare With Bailout Plans?
As we watch closely the government's bailout plans, this article explores the possible outcome for commercial capital markets...
For the commercial-real-estate players that were in hot water before the capital-markets crisis of the past two weeks, the temperature is rising.
Even creditors that were willing to make real-estate loans before the upheaval are pulling back, having witnessed the spectacle of some of the biggest names in finance and banking vanishing in a period of days.
To be sure, commercial real estate so far has fared better than residential properties. Many office buildings, shopping centers, warehouses and other income-producing properties are generating enough cash to pay their debt, and their default rates remain low.
Nevertheless, values have fallen because of the credit crisis and economic uncertainty, which is in particular creating headaches for investors who bought at the top of the market with short-term debt.
In the long run, liquidity might be restored to the market by the government's proposed $700 billion financial-bailout plan, which partly involves buying troubled commercial-real-estate debt.
On the other hand, many institutions may be reluctant to accept the government's price if steep discounts are required because the underlying real estate may still be performing well.
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