In the last two years, for most investors the words “bubble” and “crisis” have taken on a sort of cliché status. They seem to be bandied about far too often. But at the risk of being cliché, investors should take a look at “the other real estate bubble” – commercial real estate. Commercial real estate’s decline is a significant issue facing the economy because it may result in more losses for the financial industry than residential real estate. This category includes apartment buildings, hotels, office towers, and shopping malls.

This week, more earnings reports have come in from the US financial sector. The markets were keen to see how the industry is holding up against the storms blanketing commercial real estate. It seems that thus far, US banks have been charging off (effectively assigning to the write-off bin) their commercial real estate loans at the fastest pace in since the late 1980s. As the economy has struggled, developers and landlords have had to rely on a helping hand from the US Federal Reserve in order to try to get credit flowing so that they can refinance existing buildings or even to complete partially constructed projects.

Read the full article by AJ Sull “Commercial Real Estate – The Other Real Estate Bubble” in the National Post (July 23, 2009).

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