By Tom Dyson in DailyWealth:

Over the last decade, commercial real estate boomed. All over the country, players took on trillions of dollars in debt to buy malls, warehouses, office towers, and industrial parks, believing prices and rents would rise forever.

The recession caused consumers to stop shopping and retailers to stop hiring. Occupancy levels and rents started falling. Commercial real estate prices should have collapsed...

Here's the thing: So far, the commercial real estate market has held up better than the residential market. According to my friend, this is for two reasons. First, commercial real estate is mostly leased to tenants. Because occupancy erodes slowly, there's a delay in defaults.

Secondly, the new mark-to-market accounting rules kept the game going. These rules free banks from reporting loan losses until their loans mature. And they free commercial real estate owners from reporting investment losses until they sell the property.

Investors and banks hoped if they could hold on for long enough, the turnaround in the economy would rescue them. But it hasn't happened. Now, according to my friend, the reckoning is here for commercial real estate.

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