Facts matter: Sign up for the free Mother Jones Daily newsletter. Support our nonprofit reporting. Subscribe to our print magazine.

At our New Year’s Eve party, I briefly got into a conversation with a friend about the next shoe to drop here in Orange County: now that residential real estate has finished (or nearly finished) its implosion, it’s time for commercial real estate to implode. But that’s not just a problem for Orange County, of course. Matt Yglesias points us to Gillian Tett:

The [Institute of International Finance] calculates that in March 2008, there was about $25bn worth of pre-crisis investment grade commercial real estate in distress. By March this year, however, that number had exploded to $375bn (and has probably swelled since).

Thus far, the banks have “dealt with potential delinquency problems in part by extending loans until 2011-13”, the IIF notes. Or, in layman’s terms, they have swept it under the carpet. But while this avoided defaults, the IIF reckons that about $1,400bn of CRE loans must be refinanced before 2014. Alarmingly, “nearly half of these are at present ‘underwater’, ie have mortgages in excess of the current value of the property”, it adds.

What’s more, as Matt points out, owners of CRE aren’t subject to the guilt-laden appeals to moral probity that homeowners are. Rather, “commercial property is owned by rich businessmen who’ll be expected to act like rich businessmen and try to maximize profits.” This means they’ll just default if it makes sense to do so. And in a lot of cases, it probably will. You can add this to the ever-expanding list of possible shocks to the global economy (oil, China, PIIGS, municipal defaults, etc.) that might still derail a fragile economic recovery. Buckle up.

THE END...

of our fiscal year is Thursday, June 30, and we have a much larger fundraising gap than we can easily manage with only days left to go.

Right now is no time to come up short: If you value the hard-hitting, democracy-protecting, justice-advancing journalism you get from Mother Jones, please help us keep charging as hard as we possibly can with a much-needed and much-appreciated donation today.

payment methods

THE END...

of our fiscal year is Thursday, June 30, and we have a much larger fundraising gap than we can easily manage with only days left to go.

Right now is no time to come up short: If you value the hard-hitting, democracy-protecting, justice-advancing journalism you get from Mother Jones, please help us keep charging as hard as we possibly can with a much-needed and much-appreciated donation today.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate