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Commercial real estate is in trouble, and turbulence in the $15 trillion market is threatening to bleed over into the broader financial system just as the U.S. struggles to emerge from a recession.

The longer the pandemic paralyzes hotels, retailers and office buildings, the more difficult it is for property owners to meet their mortgage payments — raising the specter of widespread downgrades, defaults and eventual foreclosures. As companies like J.C. Penney, Neiman Marcus and Pier 1 file for bankruptcy, retail properties are losing major tenants with no clear plan to replace them, while hotels are running below 50 percent occupancy.

Seven months into the crisis, the industry’s pleas for relief to Congress and the Federal Reserve have been in vain: Lawmakers are at odds over even the most basic details of an economic relief package for individuals, let alone businesses, and the Fed, leery of taking on more risk, is hoping the trillion-dollar market for securities backed by commercial mortgages will heal itself.

There's also the fear that directing significant relief to the industry would be seen as a “handout to the president’s friends” since Donald Trump made his fortune in commercial real estate, said one lobbyist frustrated with the lack of traction the issue is getting with policymakers.

“Sometimes people forget the depth and breadth of what commercial real estate is,” said Mike Flood, senior vice president of commercial and multifamily policy at the Mortgage Bankers Association. “What’s at risk here is both the ability for people to stay in their apartments and the ability for people to go to their jobs. So unless there’s a stimulus, there’s a lot less to go back to once we get back to normal times.”

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It was called “jingle mail” during the last recession.

Real estate owners in the wake of the 2007-2008 financial crisis who opted not to fight to keep their homes or commercial properties, instead sent back the keys to lenders to sort out the mortgage mess.

Simon Property Group SPG, +8.04%, the largest U.S. retail real-estate investment Trust (REIT) and shopping center operator, recently took similar actions on four of its struggling shopping malls that have $410.9 million of mortgage debt, according to a team at KBRA Credit Profile, a research arm of Kroll Bond Rating Agency.

The mall owner indicated it would engage in a “friendly foreclosure” of the Mall at Tuttle Crossing in Dublin, Ohio, and the Southridge Mall in Greendale, Wis., in monthly property reports to bond investors, according to the team.

It also revealed it no longer would inject capital into the Montgomery Mall in North Wales, Pa., and would give the lender back Simon’s title interest in the Crystal Mall in Waterford, Conn., the monthly reports showed.

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Originally posted by ShiroKuro:
What is a friendly foreclosure?

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Originally posted by QuirtEvans:

quote:

Originally posted by ShiroKuro:
What is a friendly foreclosure?

I think it's non-adversarial. The lender and borrower agree on what will happen. Kind of like, "I'll give you the keys back, you get ownership, of the property, my debt is wiped off the books, no lawsuits, ok?"

quote:

Originally posted by Doug:

quote:

Originally posted by QuirtEvans:

quote:

Originally posted by ShiroKuro:
What is a friendly foreclosure?

I think it's non-adversarial. The lender and borrower agree on what will happen. Kind of like, "I'll give you the keys back, you get ownership, of the property, my debt is wiped off the books, no lawsuits, ok?"

It really takes all of the fun out of it…

quote:

Originally posted by Doug:

quote:

Originally posted by QuirtEvans:

quote:

Originally posted by ShiroKuro:
What is a friendly foreclosure?

I think it's non-adversarial. The lender and borrower agree on what will happen. Kind of like, "I'll give you the keys back, you get ownership, of the property, my debt is wiped off the books, no lawsuits, ok?"

It really takes all of the fun out of it…