Real Heights Real Estate Broker

^{Source: Copyright © 2009 Gulfnews.com. All rights reserved.}

Now it's the real estate developers who are slated to get a bailout.

By April, the US federal government expects to have a plan to refinance office towers and shopping centres in danger of defaulting. The scale is likely to be massive: Last week Federal Reserve Chairman Ben Bernanke hinted at providing another $1 trillion (Dh3.67 trillion) in credit.

The goal, he said, is to head off a "looming crisis" that could spread far beyond "For Rent" signs and shuttered mall shops. For now, commercial delinquencies are few. But office vacancy rates are heading toward record levels, according to one estimate, and banks are exposed, with $1.72 trillion in commercial real estate loans outstanding as of February 18.

Just as significant, many insurance companies and pension funds have invested in real estate, putting them at risk, as well.

"The need is urgent," says Kenneth Rosen, a professor of real estate at the University of California in Berkeley. "It is important to get this done before we have another problem."

This year some $300 billion in loans to developers are due to be refinanced by commercial banks. Given the decline in the economy, many real estate ventures might not be able to survive if they are not able to refinance their loans on better terms more reflective of today's economic conditions. But banks are largely refusing to refinance as the properties drop in value.

Any bailout of real estate developers - some of whom are known for their extravagant living (think Donald Trump) - would essentially be part of the continuing bank rescue. "The banks have significant exposure," says Rosen.

To help free up money for commercial real estate, the US Treasury and the Federal Reserve are expected to offer refinancing through a federal programme called the Term Asset-backed Loan Facility (TALF) next month. TALF is already providing a backstop for securitised debt such as credit cards and auto loans.

Yet the concern for the commercial real estate market goes beyond banks to the insurance companies and pension funds who have invested in real estate or made loans to real estate developers.

"Now, to some extent, there is the potential to spread the financial crisis to insurance companies and peoples' pensions," says Jon Southard of CBRE Torto Wheaton Research, a real estate research company in Boston.

Source: Copyright © 2009 Gulfnews.com. All rights reserved.