What started out as a credit crisis in residential real estate has now spread to commercial real estate. Most troubling is that the fundamentals of CRE are crumbling: occupancy of properties is declining as many tenants struggle in the ongoing recession.
Banks and thrifts will suffer in a commercial real estate downturn because they own nearly 50 percent of all commercial mortgages outstanding. Many of these institutions are particularly vulnerable. As of Sept. 30, 2008, some 1,400 commercial banks and savings institutions had more than 300 percent of their Tier 1 capital in commercial mortgages, according to Foresight Analytics. Regulators consider anything over 300 percent to be excessive.