According to a recent notification from the Congressional Oversigh Panel that from 2010 till 2014 loans worth $1.4 trillion on commercial properties will mature. Of these about half the loan takers have gone underwater with the value of their collaterals being less than the loan amount.
Attorney Bill Spangler of Riley, Prenn & Ricci of Weld in Eau Claire said the numbers of commercial foreclosures knocking on their doors have increased. He said, “Over the course of the last five years, just the raw number of foreclosures we’ve been dealing with has doubled at least.”
He cited the example of Wissota Green – a development project in Chippewa Falls. It had plans for constructing houses, condos as well as apartments. In 2009 December the property went back to the bank in a sheriff’s auction. Spangler explained, “The problem is those notes are starting to come due and no one out there, none of the banks are willing to refinance those loans, appraisals are coming in at significantly less than the amount of money the developers have into it.”
The oversight panel argues that the banks could endure losses up to $300 billion from the soured commercial property loans during the forthcoming years. Unlike the residential property crisis in this case of commercial loans, the local banks would be the worst sufferers.
Associate professor Bill Kryshak of UW Stout’s Department of Business said, “Most home loans were held by the larger banks, where 40% of these loans are held by what they stated were smaller community banks.” He places the blame on inflation of value of properties and also the weak economy that has led to more vacancies. He argued, “The reality is they believed properties had a higher value than realistically they did and as soon as they get a vacancy or have to lower their rents, they’re not getting enough cash to pay their interest, pay their mortgage.”
With property values having gone down and vacancies increased, new construction has slowed down. The time is not yet ripe to comment on what is happening at Eu Claire. In 2009 the city created a record with its new construction activity worth $200 million. Over half of these came from a single mega project through Luther Midelfort. Kryshak said, “The commercial industry will point out how they provide funding for schools, departments: police departments, fire departments and they do, they do, there’s no question about it.”
The congressional panel urgently suggests that major steps should be taken to avert another outbreak of bank failures. Regulations should be tightened and temporary relief should come from the government.
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