Worries Grow Over Commercial Real Estate Loans
America has already faced some of the major effects of foreclosures and a weakened housing market, but according to many experts, Americans haven’t yet begun to see the real consequences of defaulting on commercial mortgages.
Across the country, flagging retail sectors mean more risk of abandoned commercial real estate. Empty malls, office buildings and storefronts can be every bit as bad for communities, in their own way, as empty houses or residential properties.
A Feb. 17 Market Watch article shows that the Congressional Oversight Panel, the government committee that presided over the commonly familiar TARP program, is warning about the future effects of CRE defaults, which they predict will be heaviest after this year.
Many commercial real estate loans made prior to the collapse of the housing market were made “carelessly” according to the panel, and now many of them may shake the banks that made them.
Experts believe that a certain class of banks generally carries a lot of CRE debt while also providing the bulk of loan money to small businesses. When these banks realize losses related to commercial real estate, the consequences could be widespread.
In terms of commercial real estate law, it’s likely that a flood of defaults on CRE loans will include legal wrangles over the responsibility of borrowers, the “real value” of properties and the need for upkeep and maintenance of properties. Law firms involved in legal counsel for companies holding “troubled assets” will likely pay attention to what goes on in the CRE market as well as any related legislation that the federal government may consider. Meanwhile, it’s reported that relatively successful companies are on the prowl for bargains on commercial real estate purchases. All of this means attention to detail will be crucial for handling legal issues around commercial properties in a volatile market.
Monheit is the managing lawyer at Monheit Law, outside Philadelphia, Pennsylvania. He has practiced law since 1989. Michael Monheit was the managing attorney of the law offices of Herbert Monheit — now Silverman and Fodera — a firm founded by... Michael Monheit→
