1. Commercial Real Estate - What Is The Present Status?
U.S. Real estate markets are not so-healthy as they were for decades. First the residential property
sector was plagued by the foreclosure crisis and is yet to recover from the devastation. Arising out of
the foreclosure crisis, there were many cyclic reactions in the financial market. The cash-crunch
spread fast to other areas of financial activities - like auto loans; credit card purchases; hotel room
occupancy; business revenues in shopping malls; renting office complexes and so on. Commercial
new construction projects were either put off or abandoned totally, aggravating unemployment
problem etc.
The commercial real estate market is inevitably inter-related with all the above businesses. As such
the depletion in business revenues is reflected in foreclosure of commercial properties also. How?
For example, if a big hotel losses heavily on revenue by the non-occupancy of its rooms, ultimately
financial commitments, including the mortgage repayments get hard-hit. The situation of default in
mortgage repayment, consecutively for months, eventually leads to foreclosure and distress sale of
the commercial property concerned. Needless to mention a distress sale will bring the market value of
the property deep down.
Which branch of commercial properties is most affected? We have come across news reports about
the commercial foreclosures - particularly in the hotel sector - the affected hotels of luxury located in
the tourist industry hot-spots of Las Vegas in Nevada, Florida, and California etc.
What is strikingly different in residential foreclosures and commercial foreclosures is - when a
residential property is foreclosed, the amount in loss of money is about few thousands of dollars,
whereas in a commercial foreclosure, the amount involved runs into millions of dollars.
It is for this reason, the lending institutions extending financial supports for commercial property
projects are dragging their feet in coming forward to extend new loans. In the situations of default and
foreclosure also, they are not rushing into the decision of foreclosure of the property immediately, but
consider all possible alternative outlets and compromises with the borrowers.
Obviously, rather than individuals, mostly institutions and LLCs are involved in commercial
foreclosures and in dire situations of foreclosures, they tend to select the insolvency route, to escape
foreclosures.
In this context, it is pertinent to take into consideration what the experts in the Industry say about the
present status of commercial property sector and foreclosures. While the predictions about the future
of commercial real estate vary from person to person, there is unanimity among them about the
density of the problem of commercial foreclosures, presently.
According to James Lockhart, vice chair of WL Ross & Co. New York, there are a lot of distressed
commercial properties facing foreclosures with small commercial banks as of date. The problem
institutions holding commercial properties in their business have increased to 775, whereas there
were only 50 of them, just a few years back.
The impact of commercial foreclosures has led to closing of financial institutions in huge numbers. Of
a total of 8,000 U.S. Banks dealing in commercial property finances, already 250 have been closed;

2. 1300 banks have been advised by the regulators, to reduce concentration of Commercial Real Estate
property loans; and many of them are expecting closure or taken by stronger competitors.
However, in the Real Estate industry circles, it is reported that in a "Sentiment Survey" conducted
among 100 senior real estate personnel by the Real Estate Round Table, during the second quarter
of this year, 82% of the participants expressed satisfaction that the commercial real estate market is
better than last year.
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