The Commercial Real Estate Crisis begins today [View All]

[AllentownJake]

CIT Bank declared bankruptcy.

http://www.financialpost.com/story.html?id=2170260

A good portion of these loans are structured differently than mortgages.

CMBS are Commercial Mortgage Backed Securities where Real Estate holders take loans out on there property and than the loans are bundled and sold to investors.

The Real Estate industry is being attacked on two fronts

1) Dropping of rents leading to inability to pay mortgages which is similar to regular mortgages

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2) Lack of lenders to provide financing/refinancing

"Even though the cash flows of these properties are enough to pay interest and principal on the debt, their values have fallen so far that borrowers won't be able to extend existing mortgages or replace them with new debt. That means losses not only to the property owners but also to those who bought CMBS -- including hedge funds, pension funds, mutual funds and other financial institutions."
http://online.wsj.com/article/SB125167422962070925.html

CIT was the big boy of the industry.