Is the Other Shoe About to Drop?

On November 8th, the credit crunch in California was the hot topic at the Milken Institute. The panelists for the evening suggested that one of the other shoes that could drop that could exacerbate the credit crunch would be an implosion in the commercial real estate markets.

Now less than a month later, the LA Times has suggested that a chill has spread to commercial real estate and prices are beginning to fall.

The culprit? No more easy money from the commercial securities market.

Much of the inexpensive credit for investing during the recent price run-up came from commercial mortgage-backed securities, which are pools of loans secured with commercial properties. They are traded like stocks, providing liquidity and diversification to investors and access to capital for lenders.

Sound familiar?

According to the article, commercial mortgage-backed securities funded about 35 percent of purchases during the peak this year.

The article does not mention any increase in loan defaults as a cause of a credit crunch in the commercial real estate markets. Instead, the article suggests that other collateral-backed securities may also be seizing up as a result of fallout in the residential subprime markets. I've recently seen hints in the broader business press that a similar crunch may be felt by the auto loan and credit card receivables collateral backed securities markets in the not too distant future.

Don't forget - I have a source offering bridge real estate loans in California at very attractive rates. These loans can be used by borrowers without strong credit profiles and for creditworthy borrowers who need to close their deal quickly.

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Tags : credit crunch , commercial real estate , bridge loans , subprime