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Will the Commercial Real Estate Bubble Burst Your Small Business?

Posted by Nina Kaufman | June 8, 2010
URL: http://www.entrepreneur.com/blog/218792
comm-real-estate-costs.jpgSmall businesses are already besieged by the prospect of rising taxes, health care costs, and tightening access to credit. A recent report by the Congressional Oversight Panel indicates that there may be more troubles in store.

Small business may get another punch to the gut when commercial real estate mortgages come due over the next three years.

As noted by Rieva Lesonsky on Small Business Trends, pundits are considering the effect that we could experience a commercial real estate fallout, much like the fallout for residential real estate mortgages. Community banks in particular have been cited as vulnerable because they have disproportionate amounts of commercial loans on their books relative to their assets. According to Elizabeth Warren, chair of the Congressional Oversight panel (which monitors the financial bailout), half of all commercial mortgages will be "underwater" by 2011. This means that the borrower owes more on the loan than the property is currently worth.

The net effect for business owners? If you have such a mortgage for your commercial property, consider refinancing now. If you're a tenant, be prepared for the possibility that if your office building goes into foreclosure, you may need to relocate--pronto. And for all taxpayers, be prepared for the real possibility that another major bailout program may become necessary.

Got a few hours with nothing to do? Check out the report of the Congressional Oversight Panel, "Commercial Real Estate Losses and the Risk to Financial Stability"--makes for curious reading.