There is a dark cloud hovering over the financial sector; Commercial real estate. There are $3.4 Trillion in commercial real estate loans outstanding with more than half of that owned by banks. Banks have been slow to mark down the value of these assets.
Goldman Sachs recently raised it estimate for losses on commercial mortgage loans to $287 billion of which $180 billion or 63% will be absorbed by commercial banks.
The gloom in real estate circles is palpable. But is anyone listening? These problems have been on the radar of sophisticated investors for more than a year. But as residential real estate has shown signs of recovery, many investors seem to have lumped all real estate together, assuming the worst is over. We probably haven't yet seen the worst in commercial loan/mortgage defaults.
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