Last week I wrote about the tsunami that is getting ready to swamp the Commercial Real Estate market. I was meteorilogically off base. A government oversight panel for the Troubled Asset Relief Program is actually calling it a “Tidal Wave.” But it’s really a distinction without a difference.
The TARP panel is warning that as many as 3000 of the 8000 U.S. Banks have critical exposure to CRE loans. This means that the level of CRE loans is at least 300% of total capital or construction and land loans exceed 100% of total capital. Many banks originated the loans or were participants in loans that were originated by other banks. The banks that originated the loans are in scramble mode in an attempt to salvage what they can as these deals go into default or as they mature. The banks that participated in CRE loans are exploring options that may include a claim against the loan originators depending on the warranties and representations that were made. Stay tuned.