Despite the dire warnings about commercial real estate, REITs have been on a roll. And Simon Property Group -- one of the world's largest mall owners -- is now highly favored by some investors who see it as the big winner if economic rebound gains strength.
Bank stocks have been on a tear over the last few months, rising twice as fast as the market. But changes in the banking world, from souring commercial real estate loans to higher interest rates, suggest that the sector could come under pressure in the second half of the year.
Xanadu, the gargantuan New Jersey entertainment and retail complex, could be toast. Less than a year ago, analysts were arguing that the project was "too big to fail," but the state of New Jersey may be considering a move to seize the land as the developer struggles to find new financiers.
Between now and 2014, a wave of commercial real estate loan failures threatens to swamp the nation's already weak financial system. The Congressional Oversight Panel warned this week that the potential defaults could push thousands of smaller banks into failure.
Once again, the Big Apple may be ahead of the trend. Manhattan real estate mogul Elie Hirschfeld expects the New York real estate market to recover before other areas of the country as overbuilt office space is absorbed and properties are snapped up in distress and foreclosure sales.
News that business inventories and industrial production are rising suggests the U.S. economic recovery is on track. But unlike previous recessions, there are five potential "potholes" in the road ahead. Declining employment and increasing commercial real estate foreclosures are two possible biggies.
Losses on commercial property loans are one problem. But a bigger, often-overlooked, risk is the potential for CRE to be a drag on the U.S. economy for years to come, or its potential to trigger a slide back, into a double-dip recession.
It's no secret that one of the biggest dangers facing banks today is that loans to builders of office towers, malls and other commercial properties are going sour at a quickening pace. Financial regulators, including Fed Chairman Ben Bernanke and Federal Deposit Insurance Corp. chief Sheila Bair, have warned of the risk.