The existence of a bubble in commercial property has never really made it centre stage, Crunch-wise. There’s simply been too much else going on.
But Francesca Tondi and the rest of the banks team at JPMorgan reckon that could be about to change - for the simple reason that commercial property is likely to be the first part of the banks’ corporate loan book to hit asset quality problems. From a note to clients on Tuesday:
Amongst the worrying features in the property market, we flag significant debt to refinance (€200bln over next 12m), significant assets for sale (€340bln over next few months we estimate, with potentially depressing impact on prices); 25% average value decline (as forecast by our European Property team, by June-09) fast eroding the banks’ cushion as LTVs move from 65% to 87%.
The banks on Tondi’s European watch have €1 trillion of on-balance sheet exposure to commercial real estate, equivalent to 12 per cent of their loan book or 1.76 times their equity base. Oh, and there’s still €43bn of CMBS.
Here’s the top 20 from JPM’s risk list. Headed by a couple of specialist lenders, Aareal and Anglo Irish, some other more familiar names also crop up…
