Economic Letter—Insights from the Federal Reserve Bank of Dallas

Provides timely commentary on the important trends and policy issues shaping our rapidly globalizing, increasingly interconnected economy. Published monthly.

Financial Crisis Casts Shadow Over Commercial Real Estate
by Roland Meeks

The troubled housing industry has grabbed most of the headlines because of its role in touching off the current financial crisis and economic slowdown. Until recently, however, the commercial real estate sector had managed to ride out the storm without serious consequences.

Now, increasingly ominous parallels with the residential market are surfacing. Investment in all types of commercial structures has slowed after several years of rapid growth. Prices of office and retail properties, two large commercial categories, have fallen from last year’s peaks. Many commercial mortgages were packaged and sold as asset-backed securities, and funding for projects has dried up because these markets are now all but closed.

The commercial and residential markets have differences as well as similarities. The gap in size is a good place to start. In 2007, the nation’s stock of commercial structures was valued at more than $3 trillion, a little over a tenth of private wealth. By comparison, the residential housing stock was worth $14.5 trillion. While housing prices soared in recent years, commercial property valuations don’t look wildly out of line, judging by standard comparisons to net income. And while the issuance of commercial mortgage-backed securities grew rapidly, the shoddy standards of subprime residential lending were mostly avoided. ...

Visit Economic Letter, December 2008 Download Page

You can read the publication online, or you can download full publication in PDF format.

Vol. 3, No. 12. DECEMBER 2008

Federal Reserve Bank of Dallas
2200 N. Pearl St.
Dallas, TX 75201

About The Author
Meeks is an economist in the Research Department of the Federal Reserve Bank of Dallas.

Comments (1)

Name

Email

Comment

smaller | bigger

Add Comment