3.5 trillion in loans, gentlemen, with BSDs already just mailing the keys back on the cream of the crop, best assets, even... - ""As on the residential side, we have similar problems on the commercial side that are just starting to raise their head. "There are some very prestigious owners of property, commercial property, who have just recently returned the keys and if I mention the names and you knew them, you'd say, they wouldn't do that, but they have done it." He also says the banks are effectively sweeping the problem under the bed and delaying the crunch by extending the repayment periods on bad loans, hoping the economy takes a turn for the better before they have to foreclose and sell the properties." http://www.abc.net.au/news/stories/2009/08/17/2657785.htm?section=justin Green Shoots! Another US shock lurking in commercial property By business editor Peter Ryan Posted 6 hours 18 minutes ago As the United States starts to recover from the worst housing slump since the Great Depression, a plunge in commercial property values is shaping up as the next shock for its battered economy. There are now predictions that some office and industrial properties in America could lose as much as half their current value by the time there is a turnaround. A leading analyst says a plunge in commercial property values could cause another shock in the US financial system (www.sxc.hu: Robert Linder, file photo) The commercial downturn has just contributed to the collapse of the US bank Colonial Bancorp which has a $25 billion exposure to declining property values. The chief global economist at the US commercial property giant CBRE, Ray Torto, says much of the commercial property decline has already occurred. "We've seen already depending on which indices you want to look at, decreases of somewhere around 30 per cent in value, with other indices showing decreases as much as 48 per cent in value," he said. "So we are talking about markets adjusting in the neighbourhood of 40 to 50 per cent by the time this is over." Mr Torto says the worst of the commercial property crisis is yet to hit. "The albatross around the neck of the United States commercial real estate industry is the refinancing debt," he said. "There is a lot of property that is basically what we say is under water so that the debt is greater than the equity value and those kinds of situations, there is no reason for people to sell and the banks are not moving that kind of property through the system, and one of the reasons they are moving slowly on that is because they are very considerate about systemic rescue and you know, the United States has got hit by a pretty severe trauma here. "You have got an economy that is in trouble due to the auto industry. You have got the housing industry, you have got commercial real estate and you know, you have got a consumer who has got about 130 per cent debt on their personal income so that has to all be rebalanced." 'Ticking time bomb' Mr Torto says the threat of negative equity, where borrowers owe more on a property than its market value, is already affecting many houses and commercial properties, but has yet to hit fully, because many people are holding on without selling. "It is a ticking time bomb that is there. What hasn't yet hit is the realisation of it in terms of creating activity," he said. "So, for example, 25 per cent of the home owners in the United States are under water, but they are still living in their homes and they are still paying their mortgages, but it has implication for rising delinquencies. "As on the residential side, we have similar problems on the commercial side that are just starting to raise their head. "There are some very prestigious owners of property, commercial property, who have just recently returned the keys and if I mention the names and you knew them, you'd say, they wouldn't do that, but they have done it." He also says the banks are effectively sweeping the problem under the bed and delaying the crunch by extending the repayment periods on bad loans, hoping the economy takes a turn for the better before they have to foreclose and sell the properties. "Well, they understand, I don't think anybody doesn't understand. But what the banks, the joke in the States is they extend and pretend. What they are doing is they extend the loan. They know that the property is violating the conveyance of the loan for example having more value in the property than debt," he said. "So they extend the loan for a year and they pretend everything is OK. Unfortunately, given the economy is requiring a little bit more time [for recovery], this is going to be a long time before things look up."