Troubled Commercial Real
Estate Fixes Are Half Done

SOURCE: INVESTOR'S BUSINESS DAILY

The $320 bil in distress since 2007 includes skyscrapers like Regional Enterprise Tower in Pittsburgh. It will take two to four more years to resolve bad commercial property debt built up since the financial crisis of 2008, analysts estimate.

The task is taking so long amid an "extend and pretend" policy that lets banks carry toxic loans on their books. It's what has so far prevented a more severe commercial real estate meltdown, according to a number of industry observers.

They maintain that defaults peaked in 2009, and warn that property values now stabilizing could begin falling again if regulators start pressuring banks to reconcile nonperforming loans faster.

From 2007 through May this year, property research firm Real Capital Analytics has tracked $320 billion in distressed commercial real estate, which includes defaults, foreclosures and bankruptcies.

To date, more than half of that amount has been dealt with in some fashion: Banks have repossessed properties underlying some $39 billion in loans and restructured about $53 billion in loans. Meanwhile, more than $85 billion in loans has been resolved through a sale or refinancing, leaving $143 billion worth of distressed assets in limbo.

"It's pretty clear from where we're sitting that the worst is over," said Dan Fasulo, head of research at Real Capital Analytics.

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