Commercial Loan Failures Could Ruin Banks: COP

Washington, DC, Feb. 25, 2010--Commercial real estate loan failures could destroy the banking system over the next four years much as the residential real estate collapse did in 2008, according to the Congressional Oversight Panel.

In its February report, "Commercial Real Estate Losses and the Threat to Financial Stability," the panel notes that $1.4 trillion in commercial real estate loans will expire between 2011 and 2014, and most of the loans will require refinancing.

Almost half of these, the report says, are already "underwater" thanks to a 40 percent drop in commercial property values since 2007. Falling rents and rising vacancy rates put further downward pressure on those values.

Widespread losses in commercial real estate loans would hit small to mid-sized community banks the hardest, according to the report.

The COP predicts that commercial real estate losses could reach $200 to $300 billion annually starting in 2011.

Bloomberg Business Week reported that commercial mortgage defaults more than doubled in the fourth quarter of 2009.