What's all the hype about commercial real estate?
Hawkish commentators say commercial real estate is the next shoe to drop. We all watched the housing market muck up the economy, and commercial real estate may do some damage as well.
Banks lend money to developers and businesses. As long as business is good, they earn money, rent space, and repay those loans. When things go sour - and they have been a bit sour lately - the process breaks down.
Some small banks were not hurt as badly as big banks during the subprime mortgage crisis. However, their weaknesses may appear in the form of commercial real estate loans. Those loans tend to be bigger chunks of their loan portfolio.
Marketplace's Paddy Hirsch paints a picture of this story on the Marketplace Whiteboard. We'll have to see how severe the consequences are. Banks may be able to "extend and pretend" until the economy recovers. If not, commercial real estate loans will lead to more bank failures.
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