Risk of Property Defaults Growing

1. Abstract
§ It will be very difficult to acquire refinancing
§ Signs of growing stress also exist in the UK commercial property sector
§ Commercial property prices fell sharply and returns on commercial property slowed significantly

2. Contents
§ There is a growing risk of defaults on loans on commercial property
§ US property companies’ → took out big short-term loans to finance acquisitions low-interest rates are now struggling to refinance this debt, as banks curb lending and commercial property prices fall.
§ Analysts warn of a pattern that could spread:
i. US commercial property prices have fallen 10 per cent in some markets → after rising more than 90 per cent since 2001
ii. UK group British Land is expected to announce a sharp writedown in the value of its commercial property
§ Most analysts think the scale of problems building in the commercial property sector is far smaller than in the subprime loans market
§ This sector produces tangible losses this year → this will be deeply unwelcome for banks and investors in commercial mortgage-backed securities