TARP Overseers Have Commercial Real Estate in Their Sights

The congressionally appointed committee charged with overseeing the government's $700 billion Troubled Asset Relief Program (TARP) headed to Atlanta this week to hold[IMAGE]a ""hearing on problems in the commercial real estate"":http://cop.senate.gov/hearings/library/hearing-012710-atlanta.cfm (CRE) sector. Specifically panel members are looking to get a better grasp on how CRE woes will affect the banking system and the role of TARP in addressing that impact, hoping to stave off another real estate-induced financial meltdown.

Elizabeth Warren, chairman of the Congressional Oversight Panel, painted a picture of Atlanta's ailing commercial market in opening statements at Georgia Tech. She said her research shows that vacancy rates for Atlanta retail and office space topped 20 percent in 2009,

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with commercial property values declining across the board and the price-per-square-foot of office space falling by a staggering 50 percent.

""These declines have severely threatened bank balance sheets, contributing to the failures of 30 Georgia banks since August of 2008-more than in any other state in the nation,"" Warren said. ""Many experts believe that Atlanta's experience could foreshadow a problem that could echo across the country. Such a crisis could cause damage far beyond the borrowers and lenders who participate in any one transaction.""

The panel heard from government witnesses, as well as local bankers and investors about their perspectives on commercial real estate, the financing markets, and the performance of TARP so far.

Warren told representatives from the FDIC and Federal Reserve, who offered testimony at the hearing, that she was especially troubled by the guidance the regulators have issued commercial mortgage lenders regarding workouts. Warren argues that the guidelines give banks a reprieve to put off recognizing losses on a timely basis by not forcing them to writedown loans when the collateral has lost value.

The ""Congressional Oversight Panel"":http://cop.senate.gov is expected to publish a full report on their findings related to the commercial real estate market next month.