Bloomberg reported last week that a survey of property investors indicates that the majority of them don’t expect the commercial real estate market to recover until 2012.  The coincides with the time that the last of the commercial mortgages funded between 2005-2007 with 5 year maturity dates are set to mature.  It seems to me to be a little optimistic to predict that the turnaround will occur so soon after the bulk of these mortgages reset.  Without workouts of these loans there will be a flood of foreclosed commercial properties coming online through 2012.  It’s going to take time for these properties to be sold, the market to recalibrate and prices to stabilize.

With commercial mortgage defaults mounting and the lack of a clear plan on the part of the banks and the government as to how to deal with this issue, 2012 may be the point where we get to see just how bad the damage is.  The common theme that I’ve been seeing is that banks are at times hesitant to modify loans because of FDIC regulations that make accounting for these modifications very difficult on the bank’s books.  Although there is some benefit for the bank in foreclosure and ridding themselves of these assets, it seems that a greater benefit for the economy as a whole would be to modify these loans to reflect the current market and stabilize the market using that route.