by Calculated Risk on 12/02/2007 07:06:00 PM

From the Financial Times: US property risks

Banks have significantly tightened their lending standards this year, and commercial real estate has felt the effects ... Commercial mortgage-backed security issues, which finance about half of deals and were a key driver of the recent market boom, dropped 84 per cent in October from a record high of $38.5bn in March. At one point, some loans actually exceeded property values. Now, typical loan-to-value ratios have retreated to about 70 per cent – when deals are completed at all.

... US banks could see $11bn to $78bn of commercial real estate losses if the lending crisis spreads, according to Goldman Sachs. ...

The commercial property sector is not likely to suffer the huge falls experienced by the worst-hit residential markets ... Supply is near its tightest point in decades.

That CRE investment would slow - and prices decline - was pretty obvious, but I'm not sure how severe the downturn will be. In the '01 recession, CRE investment was hit pretty hard (unlike residential investment), so there probably isn't the significant excess supply that exists for residential real estate.

Still, there were plenty of silly loans made in the CRE market. And there is a large amount of supply in the pipeline (to be completed in the next year). With the economy slowing, demand for office and commercial space will probably slow (or even decline). It appears the CRE slowdown is here, but how bad it will get is uncertain (more research required!).