Fed's Lockhart:Commercial Real Estate Trouble Risk To Economy

The latest big threat to economic recovery in the U.S., the commercial property market, could be the next target of an expanded special lending program from the central bank, Dennis Lockhart, president of the Atlanta Federal Reserve Bank, said Saturday.

"On our watch list this year as a risk to the [economic] outlook is continuing worsening in the commercial real estate sector," Lockhart said.

The central banker was speaking at a conference on financial policy hosted by Vanderbilt University's Owen Graduate School of Management to honor former Fed Governor Dewey Daane.

Fed policymakers are still considering whether to include sponsorship for commercial property loans under its Term Asset-Backed Securities Loan Facility, or TALF, Lockhart said, adding that there's been no official decision.

"The details haven't been fully worked out," he said.

Lockhart is currently a voting member on the Fed committee that deliberates the bank's policy actions. At the last meeting, March 18, the committee announced a new plan to buy $300 billion in longer-term Treasurys and expand by $750 billion the size of lending programs aimed at reducing mortgage rates. The TALF program, which can accommodate around $1 trillion of support for the asset-backed markets that support consumer and business lending, has only just gotten underway, to a tepid reception from investors.

The commercial real estate market has suffered on a variety of fronts, from rising unemployment in the corporate sector to a drop in business travel that's depriving hotels of guests. As a result, Lockhart said, there's a real risk of a spike in delinquencies and failure to refinance the roughly $400 billion of commercial real estate loans coming due this year.