Commercial Delinquencies Continue UP!!!!!

Commercial Real Estate Wilts As Delinquencies Soar

Joe Weisenthal|Jun. 16, 2009, 6:24 AM|2
PrintTags: Economy, Real Estate, Recession

Commercial real estate delinquencies broke 2% for the first time in May, observes rating agency Fitch. Weakness across various areas pushed the delinquency rate higher by 29 basis points from the previous month per a report summarized by Research Recap. Meanwhile Moody's, tracking the same thing, thinks the delinquency rate could hit 4-5% by the end of the year.

Arguably, what matters is not performance of these properties but how the market values them today, since a lot of this is expected. So how's that looking? Not good.

Pragmatic Capitalist put up a chart of the latest CMBS action, which has fallen sharply since a rally in late April and mid May (which we discussed here).

GREAT VIDEO FROM A MAN WHO KNOWS!!!!

Team,

This video puts everything in perspective. It is long, but take some time to watch it even if you have to come back to it. It really sums up the state of the commercial real estate world today!

http://tinyurl.com/kohyd7

Thanks!

Don

Make sure to follow me on Twitter too! @DonMcClain

Commercial Property Loan Defaults at 15 Year High...And Climbing!

CPR Team -

Check out this article on defaults for commercial loans. It is bad and getting worse. This is our opportunity to help these owners, the banks and ourselves. Our webinar is coming up in the next couple weeks. Stay tuned for dates and times....

To success,

Don McClain


US Commercial Real Estate Default Rate At 15-Year High
Published on: Thursday, June 11, 2009

One thing that becomes more evident during a recession is how all parts of the economy are interconnected. When consumers lose their jobs they stop buying. Fewer customers means some small businesses can no longer afford to pay their rent. Which brings us to the fact that commercial real estate owners are experiencing the highest default rate in 15 years. For more on this see the following article from Property Wire.



The default rate of US commercial real estate bank loans has reached its highest level in 15 years and is not expected to peak until 2011, according to a new report.

During the first quarter 2009 the national default rate for commercial real estate mortgages held by regulated depository institutions rose to 2.25% from 1.62% in the fourth quarter of 2008, according to the report from property research firm Real Estate Econometrics.

The 0.63% jump is the largest quarterly increase since at least 1992 and pushed the default rate to its highest level since 1994, the New York based firm said. The default rate does not include loans on apartments, which increased by 0.68% between the fourth quarter of 2008 and the first quarter of 2009 to 2.45%.

Real Estate Econometrics attributed the default surge to rising vacancy rates, falling rents and increasing operating expenses all of which made it more difficult for borrowers to meet principal and interest obligations.

Additionally, those borrowers who had been current were not able to refinance or sell their properties in order to meet payments required by maturing mortgages because of tight lending conditions.

It is mortgages that originated in 2006 and 2007 that have experienced the most significant cash shortfalls because a large number of them were based on overly aggressive rent and occupancy projections.

'Increasingly, a challenge in refinancing these mortgages is that some lenders are seeking to diversify away from commercial real estate, while others are lending only with existing relationships,' the report said.

Real Estate Econometrics revised its default projections higher. It sees the default rate rising to 4.1% by the end of the year, up from its previous forecast of 3.9%. By the end of 2010, the default rate is expected to rise to 5.2%, up from estimates of 4.7%.

Analysts from the firm expect the default rate for US commercial property loans held by banks to peak at 5.3% 2011, up from its forecast of 4.8%.

Analysts commented that the revised forecasts are due chiefly to a more pessimistic outlook for the overall US economy, a projected rise in long-term interest rates and a slower than expected policy response to commercial real estate credit constraints.

U.S. commercial property bank loan defaults soar

CPR Team - Although there has been some news about funds available for commercial real estate loans, the real problems (opportunities) have not even started yet. Defaults on loans will peak in 2011. As more CRE property owners face challenging times, CPR can be of more assistance. Look for owners who need our help and let's do what we can to help them.

See you at the top!

Don


NEW YORK (Reuters) - The default rate of U.S. commercial real estate bank loans reached its highest level in 15 years and is not expected to peak until 2011, according to a report by Real Estate Econometrics.

During the first quarter 2009, the national default rate for commercial real estate mortgages held by regulated depository institutions rose to 2.25 percent from 1.62 in the fourth quarter of 2008, according to the real estate research firm's report released on Tuesday.

The 0.63 percentage-point jump is the largest quarterly increase since at least 1992, and pushed the default rate to its highest level since 1994, the New York-based firm said.

The default rate does not include loans on apartments, which increased by 0.68 percentage points between the fourth quarter and first quarter 2009 to 2.45 percent.

The analysis of the data from the Federal Deposit Insurance Corporation (FDIC) includes non-farm, non-residential property where the primary source of repayment during the term of the mortgage is derived from the property's rental income. The multifamily results include buildings with five or more units.

Depository institutions hold about half the $3.2 trillion in debt on U.S. commercial property, with the commercial mortgage-backed securities market accounting for about 25 percent of that. Insurance companies and government-sponsored entities such as Fannie Mae account for the remainder.

Real Estate Econometrics attributed the default surge to rising vacancy rates, falling rents and increasing operating expenses all of which made it more difficult for borrowers to meet principal and interest obligations. Additionally, those borrowers who had been current were not able to refinance or sell their properties in order to meet balloon payments required by maturing mortgages because of the tight lending markets.

Mortgages originated in 2006 and 2007 experienced the most significant cash shortfalls because of the large number of mortgages that were based on overly aggressive rent and occupancy projections.

"Increasingly, a challenge in refinancing these mortgages is that some lenders are seeking to diversify away from commercial real estate, while others are lending only with existing relationships," the report said.

Real Estate Econometrics also revised its default projections higher. It sees the default rate rising to 4.1 percent by the end of the year, up from its prior forecast of 3.9 percent. By the end of 2010, the default rate is expected to rise to 5.2 percent, up from the prior outlook of 4.7 percent.

It expects the default rate for U.S. commercial loans held by banks to peak at 5.3 percent in 2011, up from its forecast of 4.8 percent.

The more sour forecast was due chiefly to a more pessimistic outlook for the overall economy, a projected rise in long-term interest rates and a slower-than-expected policy response to commercial real estate credit constraints.

It sees the national default rate for multifamily mortgages is projected to rise to 4.5 percent in the fourth quarter of 2009 and peak at 5.5 percent next year.

Commercial real estate may soon bulldoze the green shoots

While many may look at the current state of the economy as a negative, this is truly a positive. There will be more wealth created in next 5 years that at any point in recent history. We just have to know how to capitalize on it! Stay tuned for exciting webinars, seminars, and opportunities.

Also, check out this article on Commercial Real Estate. This is a huge opportunity!!!

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Commercial real estate may soon bulldoze the green shoots.



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The Looming Crisis in Commercial Real Estate

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Memo To Congress: "Buy Land, They Ain’t Making Any More Of It"

A coming wave of defaults on loans to developers of condominiums, office buildings and malls could do significant damage to the already deflating economy. That was the overwhelming concern expressed at a public hearing of the Congressional Oversight Panel (COP) on Thursday that focused on corporate and commercial real estate lending.

The COP was set up last fall as part of legislation that gave the Treasury Department permission to spend $700 billion to rescue the nation's ailing financial system. The panel, which is headed by Harvard Law professor Elizabeth Warren, has no legislative or official regulatory powers. It is supposed to monitor the Treasury's spending and report back to Congress as to whether it is being effective in boosting lending and shoring up the financial sector.

Thursday's hearing was one of a number of public forums the COP is hosting on different segments of the lending market. Warren is often criticized for being too critical of banks and their lending practices. But at the hearing on commercial real estate, Warren focused on how big a problem future loan defaults will be and what should be done about them.

She got an earful. Richard Parkus, an analyst at Deutsche Bank, said he thought two-thirds of all commercial real estate loans due in the next few years — hundreds of billions of dollars' worth — could go bust. Jeffrey DeBoer, president of trade group the Real Estate Round table, fretted that problems in the lending business could cost the nation thousands more construction and real estate jobs. Next up, Congressman Jerrold Nadler of New York expressed worry that the country was headed for a lost decade of economic stagnation.

There were not many solutions offered. Nadler said he thought the government should create new banks, which, unencumbered by souring loans, would boost lending. Nadler said he thought private investors would be interested in helping fund the new banks. A number of the panelists thought the government's TALF and PPIP programs meant to boost lending were helpful but not the answer. Parkus said he thought extending the terms of commercial loans set to default would only delay the problem and make it worse. As more and more bad loans pile up, he predicted, it will become progressively harder for any of them to get refinanced.

What is clear from the hearing is that commercial real estate could turn out to be a much bigger problem for banks and the economy than the Treasury Department, the Federal Reserve and other bank regulators seem to believe. "The question is, What percentage of commercial real estate loans will have trouble refinancing?" Parkus said at the COP hearing. "It is likely to be a big problem."

How big? In the government's recent bank stress test, examiners predicted that commercial real estate loan losses for the 19 largest banks in the nation would be far less than the value of home loans that go unpaid in the next two years — $53 billion vs. $185 billion. But Warren said she thought the two-year horizon of the government stress test may have understated the size of the banks' commercial real estate problem. The government assumed different default rates for each of the 19 banks for commercial real estate and other types of loans. Warren said the government had not given much information as to what determined the default rate used for each bank; she plans to release a report on the stress test in early June.

Parkus concurred that the stress tests probably went too light on potential losses. He expects that a little over $1 trillion in commercial real estate loans will be up for refinancing in the next four years. Because of falling real estate prices and lower rental incomes, he said, as many as two-thirds of those loans may not be eligible for refinancing and could end in default.

Kevin Pearson, executive vice president of M&T Bank, said he thinks banks will be able to avoid many of those loan losses through loan modifications or "through blocking and tackling," as he put it. Parkus, though, said that outlook was too positive. He countered that banks will have a very tough time refinancing the poor loans they made at the height of the credit bubble. "There are very large losses embedded in the system," he said.