As economic activity continues to slow, the next shoe to drop may be a spate of real estate bankruptcies and foreclosures as small retailers and businesses shutdown in our malls, strip malls, store fronts, and in our industrial parks.
This week, one of the nation's largest retail space developers/managers filed for bankruptcy protection. Simply speaking, that company, General Growth Properties or GGP, saw it's revenues for store leases decline to the extent that it could no longer cover all its mortgage and debt obligations (See Full Story).
Just like the home mortgage defaults, these kind of commercial property problems will hit our banks hard because, like those risky home loans, some of these commercial properties were covered by credit default swaps. But, even worse than the housing market, there is only a limited market for empty office and retail space when an economy hits hard times. That means that these commercial spaces could sit idle for a very long time; even years. As a result, the losses of individual commercial property values could be greater than price declines that we saw in the housing market.
Image by bradleygee's photostream on Flickr with Creative Commons Licensing. Some rights retained. (Click to View Other Works).
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