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Bloomberg Mortgages on offices, shopping malls and hotels that were based on projections of soaring income during the real estate boom are roiling the bond market
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``These kinds of loans written during the height of the real estate boom could be the first to have problems,'' said Christopher Sullivan, who oversees $1.3 billion as chief investment officer at United Nations Federal Credit Union in New York. ``They were underwritten with outlandish expectations on rents and property appreciation that will turn out to be fiction.''
``Overly optimistic assumptions were used in connection with a number of property types,'' said Michael Haas, a partner at law firm Jones Day in Cleveland, who specializes in commercial real estate. ``The optimism was consistent with the times. Everybody believed in their numbers.''
Unrealistic Expectations
The stumbles in the commercial mortgage market echo those seen in residential debt, where loans were made to borrowers based on unrealistic expectations of soaring home prices. The housing market is now doing through its worst contraction since the Great Depression as defaults on subprime borrowings reach 35 percent.
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