Fed Fear over Commercial Real Estate’s Drag
By: Myles, October 14th, 2009
Today was Fed Meeting Day. In a piece entitled Commercial Real Estate Continues to Worry the Fed …. we see that apparently there is more evidence that commercial real estate continues to worry the Fed: The minutes from the September meeting of Federal Reserve’s Open Market Committee.
The underlying theme of the Fed’s view of the real-estate market comes as little surprise. Even as the housing market shows signs of life, commercial property continues to be a drag on banks and the economy.
The WSJ (and many others as well ) have recently been reporting on the Fed’s commercial real estate concerns. These articles state that U.S. banks are slow to take losses on their commercial property loans.
The Fed minutes add some color to that theme. Committee members echoed what landlords out there know well: commercial-property fundamentals are far from hitting bottom. “Commercial real estate activity continued to fall markedly in most districts, reflecting deteriorating fundamentals, including declining occupancy and rental rates and very tight credit conditions,” the minutes say.
While most of the committee’s members believe that the financial markets are improving overall, some are concerned that “many regional and small banks were vulnerable to the deteriorating performance of commercial real estate loans.”
There’s also interesting commentary on the housing market. Some Fed members are concerned that the recovery in residential real estate may be fleeting as various government programs to prop up the market run their course.
In both residential and commercial real estate, policymakers continue to grapple with the scale of the fallout on the broader economy—and what can be done to contain it.
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