American property developers are pleading for assistance from the US government to help them through tough financial times, joining a lengthening queue for public support behind banks, financial services corporations and carmakers.
Leading American property firms have told politicians in Washington of a looming crisis when $200bn (£135bn) to $400bn of commercial mortgages mature over the next few years. With banks loth to lend money, they may be unable to refinance these loans.
Developers have stopped short of asking for a direct bail-out. But they have asked for the inclusion of commercial mortgages in a $200bn programme established by the US Federal Reserve under which the central bank eases liquidity for car, student and credit card loans.
Chip Rodgers, of the Real Estate Roundtable, which represents the industry, said: “Somehow the pump has to be primed so that the credit markets can reconnect. We’re not really asking for a bail-out per se, we’re just trying to get the credit markets going again.”
The property industry supports 9m jobs, according to the RER, which has warned that commercial property risks following the residential market into a glut of foreclosures unless money is available to refinance loans. That could mean banks taking ownership of shopping centres and office blocks, worsening the financial industry’s headache over repossession.
A dozen property trade groups recently wrote to the US treasury secretary, Henry Paulson, to plead their case. “We believe there is insufficient capacity to refinance expiring, performing commercial real estate loans,” says the letter, obtained by the Wall Street Journal. “For many borrowers, [credit] simply is not available.”
Under the Federal Reserve’s loan facility, which is due to start operating in the new year, the central bank is willing to make loans to companies that provide troubled asset-backed securities as collateral. Property developers want this extended to include lending to institutions holding securities backed by commercial mortgages, which they say would provide an incentive for banks to lend again.
While commercial property entered the financial crisis in good shape, a small dip in rents could have a serious impact. A New York-based analysis firm, Reis, estimated that a 5% fall in rent from offices, shops and apartment buildings could triple the number of commercial properties facing default on mortgages because many developers were over-optimistic in predicting future rent.
Victor Canalog, director of research at Reis, told Bloomberg News: “There’s a big pool of loans underwritten in 2005 and 2006, coming due in 2010 and 2011 that I believe will experience a rise in delinquencies and defaults.”
Critics of the US government worry that the treasury’s extension of aid to banks and carmakers risks letting loose a deluge of pleas for help from other sectors of the economy, which argue that they, too, have been crippled by the credit crunch.
US car rental companies wrote this month to the speaker of the House, Nancy Pelosi, and to her Republican counterpart, John Boehner, to ask for inclusion. “Our industry is being paralysed by the current situation,” wrote Robert Barton, president of the American Car Rental Association.
Hedge funds, too, are pressing for inclusion in the government bail-out fund despite regulations that they are only open to millionaire investors.
Andrew Clark in New York
Monday 22 December 2008 20.06 GMT
Source: The Guardian