THE WARM GLOW of recovery that has bathed the capital markets over the summer may have cheered many a trading desk but it may also have blinded some participants to the severe problems that still lie ahead. In the US alone there is a $3 trillion elephant in the room. It is made up of commercial real estate loans and it is a problem that isn’t going away any time soon. "We haven’t got to the worst of it yet in commercial real estate" is the bleak warning from Jon Vaccaro, global head of commercial real estate at Deutsche Bank in New York. "US government support has so far focused on correcting issues in the financial markets – this has been very helpful and worked well. However the government’s efforts for commercial real estate have been modest, as the task is very difficult."
The figures are certainly not pretty. Total delinquency rates among US CRE loans reached 4.1% in June and are likely to increase sharply over the next two years. There are already 2,158 delinquent fixed-rate loans (totalling $27.9
