It looks like commercial real estate may crash harder than a lot of people thought it would. The WSJ is out with some rather frightening numbers.

The Journal notes that the delinquency rate on securitized commercial real estate loans has doubled since September and now stands at 1.8%. While that number indicates the problems that owners are encountering in servicing their debt, it is only a small part of the larger issue.

According to the Real Estate Roundtable there is about $6.5 trillion of commercial real estate in the U.S. which is financed with $3.1 trillion of debt. Deutsche Bank estimates that commercial property of all types have declined by from 35% to 45% from their peak 2007 highs. Do the math and with a 35% decline in value you end up with $4.2 trillion of assets and $3.1 trillion of debt.

The problem then becomes one of rolling over existing debt on a severely depleted asset base.

Between now and 2012 $154 billion of securitized loans will need to be refinanced and $524 billion of whole loans held by banks will have to be rolled. Estimates are that two thirds of the securitized loans and half the whole loans wouldn’t qualify for refinancing.

The seriousness of the problem is reflected in the Fed’s actions to assist the market. TALF has been expanded to include CMBS and the PPIP also proposes purchases of both whole loans and securities. Whether either will be able to materially alter the dynamics is problematic at best.

Compounding the program is that commercial real estate exposure is spread over a wide swath of the commercial banking sector and the evidence is that most banks are under reserved based on the current data. Estimates are that the banks are carrying their holdings at somewhere in the range of 90% to 95% of original value (link).

A reviving economy could blunt some pain but not all of it. Like residential real estate, commercial underwriting standards became too loose in the bubble which contributed to over valuations. With tighter standards even rising occupancy rates and rents are not going to be enough to save all of the bad investments. There will be blood, it’s just unclear right now how much.

more: here (WSJ) and here (Deutsche Bank Report. Tons of information if you want to pursue the topic. Also a very grim analysis)