Should Commercial Real Estate Be Bailed Out

Some of the country's biggest developers have asked that commercial real estate be included in the $200 billion loan program recently created to stave off loan defaults, foreclosures and bankruptcies.

In a letter to Treasury Secretary Henry Paulson, commercial real estate leaders emphasized that thousands of properties across the country are in danger of foreclosure.

Real estate industry analysts estimate that between $160 billion and $400 billion of commercial mortgages will mature through 2009, with up to $530 billion due for refinancing in the next three years.

However, new financing is hard to obtain due to the current credit crunch. To prevent an industry meltdown, developers are lobbying for the creation of a credit facility that would offer financing to investors interested in purchasing securities backed by newly appraised commercial real estate.

"Banks do not want to originate loans unless they have some way to transfer those loans to new investors," said Jeffrey DeBoer, president and CEO of The Real Estate Roundtable.

"There needs to be market support for investors who want to buy highly-rated securities. Once they have a market, other securities will be able to price off of that." Not everyone in the commercial real estate industry believes a bailout is necessary.

"Our business is cyclical in nature and is prone to boom and bust," said Andrew Czekaj, chair and CEO of Cambridge, a Herndon, Va.-based developer. "This does not require government intervention on behalf of the ownership group. Any intervention will simply prolong the structural problem of the market-too much capital chasing too few deals-and lead to a more severe correction later."

DeBoer disagrees, "This is putting pressure on property values and on state and local budgets. It's causing services to be put on hold, and it's putting in severe jeopardy good and solid businesses that provide jobs to local communities."

Treasury officials have acknowledged that they are taking into consideration of adding commercial real estate to the $200 billion loan initiative.

However, because the program will not be implemented until February 2009, it could take time to make modifications.

Robbie Wilson