Commercial Mortgage Delinquencies Quickly Climbing

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Crains Chicago today showed a chart that shows just how bad the Great Recession is impacting the rate of commercial mortgage delinquencies. At the end of Q1-2009, 3.6% of American Commercial mortgages were delinquent and 5.6% of Chicago area loans were behind in their payments---Both are almost 4 times worse than what was typical during 2006.

Of the Top-100 US Metro Areas, Foresight Analytics says that these 10 areas have the worst delinquency rates for the commercial mortgage market:

1. Warren-Farmington Hills-Troy, Michigan 6.3%
2. Miami, Florida -- 5.7%
3. Chicago -- 5.6%
4. Grand Rapids, Michigan 5.4%
5. Milwaukee, Wisconsin 5.2%
6. Indianopolis, IN -- 5.1%
7. Jacksonville, FL 5.0%
8. Sarasota, FL--4.9%
9. Dayton, Ohio -- 4.5%
10. Lake County, IL / Kenosha County, WI 4.4%

In the 1990's commercial mortgage delinquencies peaked around 9% and it's likely that as this recession lingers, unemployment climbs and vacancies rise--the rate of delinquencies will continue to escalate.

What I found quite interesting is that most of the "top-10" come from the Midwest and Florida---but as we all know the credit crunch has hurt consumers in California, Nevada, Arizona and Oregon as hard as the midwest---so I'm guessing in a few more quarters time you'll be seeing communities like Phoenix, LA, Las Vegas, and Portland creeping to the top of the list as well.

Commercial Mortgage Delinquency Rates Q4-2008

Today WSJ.com published a Deutsche Bank report that compares the delinquency rates for 5 sectors of commercial real-estate (Office, Industrial, Hotels, Retail, and Multi-family) with the overall Delinquency Rate for commercial properties.

Click on Chart for larger image

As you can see, Hotels, Retail, and Multi-family commercial properties are really seeing a tremendous uptick in delinquency rate with Multi-family delinquencies crossing 2.5%.

Commercial Loan defaults could Triple

Commercial Loan Defaults May Triple as Rental Income Declines

By Hui-yong Yu

Dec. 22 (Bloomberg) -- U.S. commercial properties at risk of default could triple if rental income from office, retail and apartment buildings drops by even 5 percent, a likely possibility given the recession, according to research by New York-based real estate analysts at Reis Inc.

Lenders that used optimistic rent estimates to grant mortgages beginning in 2005 stand to lose as much as $23.1 billion, or 7.02 percent, of total unpaid balances if landlords lose 5 percent of net operating income, according to Reis. Analysts examined data on 22,890 properties that together may account for unpaid loans of about $329 billion in 2009, said Victor Calanog, director of research.

Banks are at risk as office vacancies are forecast to rise to 15.6 percent next year from an estimated 14.6 percent at the end of 2008. Lenders who sold commercial mortgage-backed securities to pension funds, investment banks and foreign governments have been hit by more than $1 trillion in losses and asset writedowns connected to bad residential loans.

Read the rest of the Bloomberg story here