What's causing the slow motion commercial real estate crash?


As the economy tries to rebound from its horrific slump, commercial real estate has remained a potential source of trouble. Both Federal Reserve Chairman Ben Bernanke and Treasury Secretary Tim Geithner have highlighted the uncertainty that exists in the sector, which could lead to loan losses hitting an already-fragile banking system. Of particular concern are regional banks, whose portfolios tend to be more heavily concentrated in commercial assets. This became particularly evident after Colonial Bank, an Alabama-based lender with significant exposure to construction and commercial loans, became the largest bank failure of the year.

Even as the sector continues to struggle, capital has been flowing in searching for opportunities. In recent weeks, hotel chain Hyatt, mortgage modification ship Pennymac, and commercial REIT Starwood Properties Trust, have all filed for IPOs. DailyFinance asked Jonathan Horn, Senior Managing Director, and Josh Malka, Managing Director, at Helios Capital LLC, a mortgage loan advisory firm to banks, for their outlook on commercial real estate -- and what it means for the banking system and the broader economy.