Commercial Real Estate Delinquencies & Defaults on the Rise

Although the U.S. housing market is showing glimmers of recovery, the commercial real estate sector is another story.

The weak economy, rising unemployment rate, falling real estate values and more stringent than ever underwriting standards have made refinancing much more difficult for commercial real estate property owners.  

Phillip F. Blumberg, chairman of Blumberg Capital Partners, says that banks are highly concerned about the commercial real estate loans they granted during the peak of the 2000s, hence the reason banks are remaining conservative in their lending. 

Blumberg estimates that $236 billion in commercial real estate loans that were turned into securities will need to be refinanced in this period and that $67 billion of these loans will be lost. 

According to Blumberg, “We are on the brink of one of the worst commercial real estate financing markets ever.” Richard Parkus, an analyst with Deutsche Bank says that “Defaults are exploding,” and predicts it will be worse than the early 90’s.

Numerous banks have closed down over the past year, mainly due to defaulted commercial loans and the rate continues to escalate at a heady pace. Shopping malls, store fronts, office buildings, industrial parks and hotels have foreclosed across the country, mainly due to commercial loans going south.

Even More Delinquencies and Defaults on the Horizon

There is an estimated $3.5 trillion in commercial real estate loans currently held by banks, commercial mortgage backed securities and other institutions.  

In a mid-January report, Moody’s Investors Service stated that at the end of 2009, 4.9% commercial mortgage-backed securities were delinquent, which was a significant increase from the previous year.

According to Moody’s delinquency tracker, more than 9% of the bonds for hotel mortgagees and 8% of the bonds for apartment-complex mortgages were delinquent. Moody’s analysts project that commercial loan performance will continue to weaken throughout 2010.

Parkus estimates that the market will probably not start turning around until 2012 and by then, commercial property values will have declined 40% – 50%  from the peak of 2007. 

More than $2 trillion dollars in commercial mortgages are expected to come due by 2013 and many commercial real estate borrowers will have difficulty qualifying for refinancing. 

According to Edward Learner, senior economist at UCLA, we’re going to see many more commercial real estate loan delinquencies and defaults to come.

Short Sale Silver Lining

Of course, the silver lining in all this is that smart investors can benefit from buying income producing short sale property, which is done in lieu of foreclosure. The tricky part is finding the right short sale property to buy and that’s where real estate investment expert, Leigh Brown comes in.

Commercial Real Estate, Foreclosures, Short Sales Charlotte North Carolina

Leigh Brown is the leading real estate, foreclosure, short sale and investment property expert in Charlotte, NC. She has helped many clients purchase ”prime” bargain real estate in the Charlotte-metro area.

If you’re looking to buy investment property in Charlotte, NC,  you need the experience that Leigh Brown offers. With Leigh by your side, you can rest assured that you’re getting the best possible price for the greatest possible return on your real estate investment. 

To reach Leigh, please fill out her online contact form or give her a call at (704) 688-5005 or toll free at (866) 440-7136.

Sources:
New York Post
Miami Herald 
Huffington Post