By Sheryl Jean, The Dallas Morning News
Jan. 6--A record amount of commercial real estate loans coming due in Texas and nationwide the next three years are at risk of not being renewed or refinanced, which could have dire consequences, industry leaders warn.
Without new lending, many malls, offices, warehouses and other properties could default or go bankrupt.
Texas has about $27 billion in commercial loans coming up for refinancing through 2011, ranking among the top five states, based on data provided by research firms Foresight Analytics LLC and Trepp LLC. Nationally, Foresight Analytics estimates that $530 billion of commercial debt will mature through 2011. Dallas-Fort Worth has nearly $9 billion in commercial debt maturing in that time frame.
If a loan is not paid off or refinanced when it matures, the lender can foreclose on the property.
"This is a very serious problem, and it's not going to go away very soon," said Jeffrey D. DeBoer, chief executive of the Real Estate Roundtable, an industry group in Washington, D.C. "The issue is what happens when loans cannot be refinanced. The stress on the financial system itself would be quite acute, and the impact on local communities and jobs could be quite serious. All of this adds up to what we think is a compelling case for policymakers to restart the credit markets."
Credit crunch hits
In the last few years, lenders sold a record amount of real estate loans as securities to investors. Then the $900 billion commercial mortgage-backed securities market came to a standstill as the subprime housing debacle, Wall Street crisis and recession hit.
The lack of credit weighs on the industry, considering the refinancings coming due.
Most of Texas' $27 billion in loans maturing through 2011 -- $18 billion -- is held by financial institutions, according to Foresight Analytics.
Texas also has $9 billion in commercial mortgage-backed securities, the third-largest amount after California and New York, according to Trepp.
"Banks are saying we have to pay them off or they'll take the property back -- that would be an unnecessary death knell for the industry," said Steve Golding, president of Dallas-based developer Jackson-Shaw. "The banks are just going to have to be patient. If everyone is forced to sell, the banks are going to lose and the taxpayers are going to lose."
In addition, little credit is available for new loans.
Jackson-Shaw has $35 million to $40 million in construction loans coming due this year, half of which do not have extension options, Golding said. In those cases, the developer will try to negotiate extensions with its lenders or seek long-term commercial mortgages for the properties. In the past 18 months, Jackson-Shaw has built up a "war chest" of cash for such situations.
"Many of the properties that are at risk today are performing assets," said Michelle Corson, president of the Real Estate Council, an industry group in Dallas. She noted that unlike in the 1980s recession, when the Dallas area was overbuilt, the challenge for property owners today is "that we're overleveraged."
Scott Lynn, principal of Dallas-based Metropolitan Capital Advisors, is helping some borrowers talk with lenders about renewing loans that mature in 2009. The process is taking longer, borrowers may pay more and the parties might have to consider the last-resort option of the lender taking back the property, he said.
Needing a catalyst
Many industry leaders don't see how the commercial real estate market will get back on its feet without a catalyst.
They note that commercial real estate employs about 9 million people nationwide and property tax revenue helps pay for local public services such as education and police.
The federal government has pumped $700 billion into banks to encourage more lending, with limited results. It's also establishing a $200 billion program to help investors buy investment-grade securities backed by new car loans, student loans and credit card debt.
Industry representatives, including the Roundtable's DeBoer, have been meeting with policymakers about how to address the commercial credit crisis.
One proposal is for the federal government to expand its $200 billion consumer loan program to include new commercial real estate loans. Treasury and Federal Reserve Bank officials have said they would consider that option.
Another solution might be the billions of dollars in private equity funds that have been waiting on the sidelines.
Mark Dotzour, chief economist for Texas A&M University's Real Estate Center, said the so-called vulture funds have about $130 billion ready to "snap up some of the commercial loans" not refinanced or renewed. Those funds could cover much of the commercial mortgages maturing this year at least, he said.
-----
To see more of The Dallas Morning News, or to subscribe to the newspaper, go to http://www.dallasnews.com.
Copyright (c) 2009, The Dallas Morning News
Distributed by McClatchy-Tribune Information Services.
For reprints, email tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.
A service of YellowBrix, Inc.