The full magnitude of the foreclosure crisis remains gray but already fresh ominous clouds are gathering. A new foreclosure crisis is looming as malls and hotels are now standing next in the line of fire.
Despite the fact that the holiday season is on in full swing one can see the writing on the wall – the same causes that had led to the present foreclosure crisis are now gripping the commercial units. Malls from Georgia to Michigan are entering the dreaded foreclosure zone. In California and Arizona the same fate has taken over numerous hotels that are about to default – and defaulting is the sure first step towards becoming reo properties.
It is apprehended that the pace will quicken, as the number of delayed payments are likely to double and triple by the close of 2009 according to analysts Fitch Ratings Ltd. Scott Tross is a real estate lawyer of New Jersey. He said, “We’re probably in the first inning of the commercial mortgage problem.” The news is alarming not only for the property owners but also the employees who will lose their jobs, towns will lose revenue and school budgets and social help centres will be negatively affected.
Companies have time and again withstood many slumps but economists see that this one is going to be without precedent. Previously when the firms faced rough weather they negotiated with banks and got time to refinance loans. But the banks themselves are in sorry shape. They are now bracing for unparalleled losses. Another expert, Paul Miller said, “It’s a toxic drug and nobody knows how bad it’s going to be.” Miller was one of the first bells to set the alarm bells ringing about the foreclosure crisis in the residential markets.
Business firms do not repay their loans through 30 years – the loans usually range for five, seven or ten years. Big payments become due towards the end of the loan term. In 2009 nearly $20 billion will be due in the business loan category. The retail outlook is particularly bleak. Already Circuit City and Linens’n are seeking bankruptcy protection. On the list of those who are shutting down are Home Depot, An Taylor, Sears and Foot Locker. Most of these were paying rent that the borrowers expected to cover mortgage payments but that hope is fading down with the shops and establishments downing shutters.
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