US Credit Crisis Worse Than S&L: Survey

Source : The Business Times, September 23, 2008

(NEW YORK) Sixty percent of US commercial real estate executives surveyed said they believed the current credit crisis had eclipsed the Savings & Loan crisis of 1989-1991 as having the greatest impact on the state of the industry.

Nearly 80 per cent said they did not believe the meltdown of financial powerhouses - the bankruptcy of Lehman Brothers Holdings Inc, Bank of America Corp's takeover of Merrill Lynch & Co and American International Group's bailout by the federal government - signalled the end of the crisis, according to law firm DLA Piper's 2008 State of the Market Real Estate Survey released on Sunday.

The survey was distributed in August and 424 recipients responded. But the cataclysmic events on Wall Street in the third week of September prompted the law firm to conduct follow-up questions on Sept 15, and 307 responded.

'We seem to running in place at best, and at worst, we're in some sort of a free fall,' said Jay Epstien, chairman of the US real estate practice for the law firm.

The survey was conducted before US Treasury Secretary Henry Paulson called on Friday for the government to spend hundreds of billions of dollars to rescue financial companies from defaulted mortgages and other toxic debt that have threatened to undermine the financial system.

Still, the respondents were bleak, with 90 per cent describing themselves as having a bearish outlook for the next 12 months for US commercial real estate market, up from 68 per cent from a year earlier, when the credit crisis began. Half those who said they were bullish believed they could find good opportunities resulting from distressed properties and loans.

The commercial property market has come to a near halt since the credit markets became unhinged and sources of financing dried up.

One of the cheapest and most often-used sources of debt that helped drive the commercial real estate boom was the commercial mortgage-backed securities (CMBS). Last year, the CMBS market accounted for US$230.19 billion worth of securitised commercial mortgages, according to the Commercial Mortgage Securities Association. This year the total fell to US$12.15 billion, and there have been no new issuances since June.

About 46 per cent of the respondents said they did not believe securitised lending transactions financed by the CMBS market would return to prior levels until after 2010. -- Reuters