Dr. Richard Green, Director of the USC Lusk Center for Real Estate, is quoted in the June 25, 2009 edition of Business Week
Bank Stocks: The Smartest Plays Now
Business Week
By David Bogoslaw
...There's been a huge sigh of relief breathed by investors in U.S. banks since the Treasury-ordered stress tests that concluded in early May. In the weeks since, banks have raised an aggregate $16 billion in equity, putting many of them in a much better position to deal with a looming problem: losses on loans still to come, particularly from commercial real estate loans...
...Default rates on commercial loans are expected to continue to climb through 2012 as property appraisals catch up with the sharp drop in property values around the country and as loans mature. Even properties on which borrowers made 30% down payments are underwater where property values are down 33% to 40%, and in many cases loans were made with much lower down payments, says Richard Green, director and Lusk Chair in Real Estate at the Lusk Center for Real Estate at the University of Southern California. That will become a bigger problem as those loans come due and borrowers try to refinance.
"On one hand, regional banks don't want to foreclose and have the property on their balance sheet," he says. "On the other hand, everyone's capital-constrained, so they don't want these loans they were planning to be rid of to hang around on their balance sheet because then they can't make new loans." He estimates that $350 billion in commercial loans will mature over the next two to three years...
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June 25, 2009