COMMERCIAL REAL ESTATE COLLAPSING

This falls into the "I'm just a carpenter" category but I'm going to give my opinion anyway. It seems to me, based on the signs in front of the commercial building sites around St. Louis, that most commercial lending is done by smaller local banks. As the defaults grow, how will they survive? The answer is they won't. They are not "too big to fail". If there is any relief (which there shouldn't be) from the government it will go to the usual suspects. It seems awfully convenient to me that the government helps the big boys (which most of the regulators have ties to) by not helping their competition.

As the local banks disappear we will be left with a select group of large institutions with serious ties to the government as our only banking option. It looks to me as though if the plan is to end up with government controlled banking this goes along way towards seeing the plan fulfilled.

Oh, and by the way, the FDIC is on the verge of collapse. What is going to happen to the deposits held in these small banks?

"The default rate for commercial real estate loans held by banks reached the highest in 16 years and the outlook looks worse, according to a report by a research firm released on Monday.

The picture for loans underlying commercial mortgage-backed securities looks as bleak, according to another report.

The national default rate for commercial real estate mortgages held by banks and other depository institutions reached 3.4 percent in the third quarter, up 0.52 percentage point from the second quarter, according to research firm Real Estate Econometrics.

It was the largest one-quarter increase since quarterly data became available in
2003...

...Realpoint sees delinquent unpaid CMBS balances continuing along the current trend, reaching $40 billion to $50 billion before the end the first quarter of 2010. It sees the delinquency percentage growing to between 5 percent and 6 percent through the first quarter of 2010.

It could potentially surpass 7 percent to 8 percent in 2010, as several large loans issued in 2006 and 2007 continue to show signs of stress and older loans mature without prospects of being refinanced."

Reuters