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Commercial Real Estate Collapse

The commercial real estate disaster is sinking banks on a weekly basis. Talk of a V-shape recovery is now largely a moot point since we are past the point of a quick and strong recovery. The question now revolves around what we are going to face for the next few years. Commercial real estate really is a harbinger of what went wrong in the last decade. Banks and builders hungry for massive profits overestimated the demand for Starbucks and Macys locations around the country. After all, you actually need money to spend and many average Americans are struggling just to pay their monthly bills. The only way commercial real estate (CRE) was going to do well is if we had a booming population of young and wealthier professionals with more disposable income. Yet that did not happen.

Even though the claim of building and bottom talk is now out there in the open, banks that actually lend the money for these projects have different ideas.

Lending for commercial loans has collapsed. Even though banks would like you to believe that all is healthy and strong they have a front row seat to the carnage in the CRE market. And with CRE locations you get an actual real feel of the economic problems we are facing. Many Americans have pulled back on their spending and without spending many places simply cannot move forward. Banks are also taking scissors to American credit cards and access to other people’s money is slowly going away. The CRE market at one point was valued at $6.5 trillion. Today it is closer to $3 to $3.5 trillion. The loan amount at the peak was roughly $3.5 trillion so you had a nice equity cushion. Today, the balance is nearly the same but the value of the collateral has collapsed.

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