Commercial Mortgage Default Rates May Rise to the Highest in 17 Years

The default rate on commercial mortgages, the process for loans in the current status to the default status, may rise to the highest in 17 years in Q4’09 as debt for refinancing remains scarce, and as market-level vacancy rate and cash flow continues to deteriorate.

From Bloomberg: The rate [on commercial mortgages held by U.S. banks] is likely to reach 4.1 percent by year-end, Real Estate Econometrics LLC, a New York-based property research firm, said in a report today.

The projection implies defaults on about $44.3 billion of commercial mortgages, based on the $1.08 trillion of such loans held by U.S. banks in the first quarter, according to Chandan and Bloomberg calculations. Commercial defaults already are at a 15-year high after climbing to 2.3 percent in the first quarter, or $3 billion, from 1.6 percent at the end of 2008, according to the firm’s analysis of Federal Deposit Insurance Corp. data.

The projection for this year would match the 4.1 percent rate seen in 1993 and be the highest since defaults reached 4.6 percent in 1992 during the savings and loan crisis..

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