July 22, 2009

Bernanke: Commercial defaults may be next

The United States may face a wave of commercial real estate defaults as the financial crisis evolves, U.S. Federal Reserve Chairman Ben Bernanke said Wednesday.

But Bernanke, in the second day of his semiannual congressional testimony on monetary policy, did not commit to any steps the Fed might take to aid the market.

Senate Banking Committee Chairman Sen. Christopher Dodd, D-Conn., told Bernanke some have suggested the commercial defaults may even dwarf the residential mortgage problems.

Trends Research Institute Director Gerald Celente, who forecast the subprime mortgage financial crisis and the U.S. dollar's decline in 2006, has predicted the defaults will turn into a commercial real estate collapse that will dwarf the subprime problem.

Bernanke said it was too early to say how effective the Fed would be in staving off a wave of commercial real estate defaults.

It may be appropriate for the government to consider steps such as guaranteeing commercial mortgages to support the industry, he said.

U.S. commercial property prices fell 7.6 percent between April and May, bringing the total drop to 35 percent since the market's peak, Moody's Investors Service said.

At least 5,315 commercial properties worth more than $108 billion were in default, foreclosure or bankruptcy in June, real estate research firm Real Capital Analytics Inc. said.

That's more than twice the number of troubled properties six months earlier and almost twice the value, it said.

Hotels and retail properties are among the most problematic assets, the study said.