As we've previously detailed here, here, and here, between increased escalating vacancy rates, asset deflation, the leverage used to finance these commercial loans, and the inability to refinance loans in this environment, commercial real estate is on a downward spiral.
This WSJ article marks what may be the beginning of the next stage of the crisis; the failure of two big issues backed by commercial real estate:
The market for debt used to finance hotels, offices and shopping malls tumbled Tuesday on worries that the long-feared rise in defaults for commercial mortgage-backed securities had begun, possibly ushering in the next phase of the financial crisis.
Analysts at Credit Suisse said two big commercial mortgages that had been packaged into securities in the past year were likely to default. The rapid deterioration of these loans fed worries that the weakening economy and higher unemployment rate would drag down the $800 billion market for commercial-mortgage-backed securities, or CMBS, which so far has withstood the credit crisis with low delinquency.
The financing rate for a commercial real estate loan has now more than tripled over the past four years. If rates remain this high, expect more failures and another round or two of bank write-downs.