Commercial Real Estate Eyed as Looming Trouble Spot
Elizabeth Warren, chair of the TARP Congressional Oversight Panel, appears on The Early Show, October 22, 2009.
/ CBSElizabeth Warren, the chairwoman of the TARP Congressional Oversight Panel, told CNBC this week that around half of all commercial mortgages will be underwater by the end of 2010, posing a "very serious problem" for the economy over the next three years.
On Tuesday, Treasury Secretary Timothy Geithner echoed that concern on CNBC, but said the issue could be solved.
"Commercial real estate's still going to be a problem for the country. But we can manage through this process," he said.
Both Geithner and Warren said the commercial real estate troubles will affect mostly smaller banks.
"We now have 2,988 banks--mostly midsized, that have these dangerous concentrations in commercial real estate lending," Warren told CNBC.
Federal Deposit Insurance Corporation chief Sheila Bair has said she expects commercial real estate losses to be the primary force behind bank failures this year.
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Developers are building two new strip malls near me. I'm sure the developers paid cash up front for these new buildings. Banks wouldn't be so stupid to loan more money to build buildings they can't possiblly rent.
And the adjacent strip malls and office buildings with the empty shops and "For Rent" signs are just a fluke of some kind, I'm sure they've got a sound businesss plan, just like AIG.