So the next shoe to drop is commercial real estate.
We know this because the Wall Street Journal said so today.
Wait, why do we have the feeling we read that story a gazillion times? Ah, well, because we did. And we’ve been reading these for for quite some time now too.
As Joe Weisenthal wrote back in May, addressing the “what is next shoe to drop” question:
Over and over again we’ve heard the same thing loud and clear: commercial real estate. One problem with this is that if everyone is saying that it’s the next shoe to drop, is it really?
So yeah, with maturing mortgages, easing delinquencies, increased unemployment, falling property valuations and tightening credit, it’s no secret here that there will be more substantial writedowns.
The real question is how much exposure banks have to CRE- which is hard to decipher as they remain tight lipped about the matter.
According to the Federal Reserve Board of Governors, CRE accounts for at least 4% of GDP. There are currently some $2.5 trillion of commercial property loans on the balance sheets of financial institutions and in CMBS markets.