KEY POINTS:
Commercial property developers are lobbying for a piece of the US
Government's Wall St bailout fund, saying that a real estate crash could wreak havoc on the banking system next year.
A Federal Reserve scheme to kickstart the market for credit card
lending and small business loans should be extended to cover commercial
mortgages, where US$160 billion ($278 billion) of loans are due for refinancing in the next 12 months, the industry says.
The intensifying lobbying efforts have put developers at the head of a
growing line of industries - from banks, to insurers, to car manufacturers - asking for Government assistance.
"We are not talking about a bailout for developers," said Jeff
DeBoer, president of the Real Estate Roundtable, a Washington trade group. "We are talking about restarting the credit markets."
The biggest office or retail developments tend to be financed using
commercial mortgages lasting between five and seven years, meaning that
they must be regularly refinanced.
Before the credit crisis, banks were able to parcel out the loans to other investors through the securitisation market, but the market for commercial mortgage-backed securities has cratered in the past few
months, because of fears that the recession will cause rents to slump and property developers to default.
There is not going to be enough lending available to refinance even highly profitable developments, the industry is warning.
That would mean that ownership of large parts of the US$6.5 trillion
commercial property market could revert to the nation's fragile banks, and the banks would struggle to sell these assets without causing a collapse in prices, DeBoer said.
"The banking system is already under stress, and the losses would be borne throughout the system, not just by the banks but also by pension funds ... and by local authorities."
- Independent
