Commercial real-estate woes will push a plethora of banks belly-up, says Eugene Ludwig, former Comptroller of the Currency.
“Losses from commercial real estate will be quite high by historic standards,” Ludwig, now chairman of consulting firm Promontory Financial Group, told Bloomberg.
“Hundreds of banks will fail or will be resolved over the course of the cycle.”
Last year, 140 banks failed.
Problems abound for real estate loans involving malls, office buildings, hotels and apartment/condo buildings.
And losses on those loans are hitting small and medium banks hard.
The default rate on commercial mortgages held by U.S. banks more than doubled to 3.4 percent in the third quarter, according to Real Estate Econometrics.
That puts default rates at a 16-year high.
Losses on commercial real-estate loans will continue to depress bank earnings, because the value of the real estate backing the loans keeps dropping, Jon Greenlee, associate director of the Federal Reserve’s bank supervision division, said in congressional testimony.
The difficulties are more acute for smaller banks, as regional institutions are almost four times more concentrated in commercial property loans than their larger brethren, according to Bloomberg data.
Buyout king Wilbur Ross told Bloomberg that a crash has begun in commercial real estate.
But real-estate legend Sam Zell disagrees.
“All the new savants on commercial real estate like Wilbur Ross — I find their comments are inversely related to their knowledge of the industry,” Zell said in a recent speech.
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