They are hoping that the collapse of the commercial property market in the early 1990s would not repeat itself this year, but industry experts are still bracing for the onslaught of commercial properties on Boston foreclosure listings.
The commercial property market in Massachusetts had already seen several notable commercial foreclosures this year, such as the Bay Colony Corporate Center in Waltham and John Hancock Tower in Boston. These properties were all left to foreclosures by their owners because of tight credit, heavy debt and declining values and rents.
Industry experts said that landlords could not get new financing because of the almost 50 percent decline in rents and values. They have no option but to either increase equity or allow their properties to go on Boston foreclosure listings.
They said that many properties at-risk of foreclosures were bought at the peak of the commercial market, before the current economic downturn.
Meanwhile, new property owners are facing declining rents and values, failing to get a return on their investments. And when their debts are due, they will likely face foreclosure, according to experts.
What industry experts in Massachusetts are concerned about are mirrored in the nationwide commercial real estate market. Many industry analysts said that the commercial property market as a whole is facing very tough times, further putting strain on the already vulnerable and fragile banking system.
Some analysts have projected that the commercial property market problems would match, if not surpass, the subprime mortgage crisis that led to the collapse of the financial market last year.
Commercial mortgages, just like subprime mortgages, were bundled together and backed by the same credit-default-swap and derivative products that drove the subprime market to collapse and may also do the same to the commercial property market.
But some bank officials are allaying fears of a possible collapse of the commercial property market. They said that the current market is not overbuilt nationally which was not the case in previous recessions.
They said that banks and lenders are already facing a surplus of residential foreclosures on their portfolio and are not willing to burden it further with commercial properties.
But they said that major problems are just around the corner, like a bomb waiting to explode if the economy would not improve and unemployment would continue to rise.
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