| NEW YORK, June 9
NEW YORK, June 9 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
"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
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.
(Reporting by Ilaina Jonas, editing by Matthew Lewis)