New Commercial Mortgage Crisis on the Horizon

It stands to reason that commercial mortgages would follow the same path as residential mortgages, given that consumers who are forced to cut back on spending won't be able to afford spending money at the retail outlets that occupy so many commercial properties around the country. As consumer spending continues to plummet, shopping malls, hotels and other commercial real estate tenants are losing customers - and cash flow - at an unprecedented rate.

Business plans and revenue streams are drying up quickly and formerly reliable tenants are being forced to vacate prime commercial real estate. When this happens, the owners of the commercial real estate are without the income necessary to pay the mortgages on the properties. With the broad-based reduction in real estate value, including in the commercial sector, many commercial real estate mortgagees are simply allowing their properties to go into bankruptcy.

And even the commercial real estate owners who are in a financial position strong enough to refinance are finding that the banks no longer want to loan on properties whose values are dropping -- and whose prospects for attracting tenants are also evaporating.

With the terms of the $700 Billion government bailout for the financial industry being tweaked on a daily basis, it will be interesting to see if and how the government chooses to address the commercial mortgage crisis that currently seems inevitable. Even with significant government intervention, a deep and long-term economic downturn is becoming increasingly likely.