WebCogito

Stop. Stay. Think.

This morning the Washington Post has an article up on something many of us have seen coming for a while: Commercial Real Estate (i.e., storefronts, malls, etc.) is due for the next big crash.  But this time, instead of the big bad banks everyone loves to hate, the ones taking the brunt of the crisis will be smaller local and regional banks.

A mortgage crisis like the one that has devastated homeowners is enveloping the nation’s office and retail buildings, and few places are likely to be hit as hard as Washington.

The new round of financial pain, which some had anticipated but hoped to avoid, now seems all but certain. “There’s been an enormous bubble in commercial real estate, and it has to come down,” said Elizabeth Warren, chairman of the Congressional Oversight Panel, the watchdog created by Congress to monitor the financial bailout. “There will be significant bankruptcies among developers and significant failures among community banks.”

Unlike the largest banks, such as Citigroup and Wachovia, that got into so much trouble early on, the community banks in general fared better in the residential mortgage crisis. But their turn is coming: Not only did community banks issue a higher proportion of commercial loans, but they also have held on to them rather than sell them to other investors.

Nearly 3,000 community banks — 40 percent of the banking system — have a high proportion of commercial real estate loans relative to their capital, said Warren, whose committee issued a report on commercial real estate last week.