According to a leading bank regulator, the U.S. commercial real estate market will see increased losses and bank failures in the coming month as a result of the decline in the housing market.
The Financial Times reported on Friday that John Dugan, Currency comptroller, for the Office of the Comptroller of the Currency (OCC), which charters, regulates and supervises all national banks and federal branches and agencies of foreign banks, said regulators have become more and more concerned regarding the state of U.S. banks that have been damaged by the housing market.
Thursday during a speech in Miami Dugan said,” We’re entering a stage of the commercial real estate credit cycle where problems have started to surface and losses have started to increase”.
The Financial Times also said that the possible U.S. economic decline could further complicate the commercial real estate industry as well as the fact that as home purchases fell, commercial borrowers have had a more difficult time making loan repayments.
Many local lenders had significant exposure to the slumping housing market and, as a result, are at risk for loan delinquencies and defaults. Because of this Dugan said he expects bank failures to increase.
According to the Financial Times, International commercial real estate investment is predicted to drop 17% in 2008. But considering that $930 billion dollars was spent on commercial property in 2007, a 26% increase from 2006, according to global property agent Cushman & Wakefield, some real estate professionals find the predicted decline hard to believe.
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