Commercial REO’s and Apartment REO’s are Around the Corner: Los Angeles, Orange County, San Diego, Riverside and San Bernardino Markets are Targets

The latest quarterly report from Capmark signal a “red flag” in the commercial loan market. Capmark’s announcement of its $1.6 billion quarterly loss is the tip of the iceberg to what’s coming. Capmark is one of the largest commercial lenders in the US with $11.1 billion in assets and approximately 97% of its portfolio in commercial loans, according to Moody’s.

Nationwide, the multi-family sector will see a lot of defaults. In a recent report by CHPC, it’s estimated that 2,200 multi-family loans will fail across the county. What’s the definition of failure? Not being able to re-finance under current lending underwriting guidelines of 70% LTV and 1.3 DCR. Approximately 8,800 multi-family loans nationwide are expected to come due through 2012 and loan losses could total $90 billion for the apartment sector. For the whole commercial sector economists are prediction losses totaling $500 million.

Locally in southern California there are 924 properties that are in the pre-foreclosure stage, with many of them headed for the REO department of banks across the United States. Los Angeles is way ahead of the pack with 737 bad apartment loans, with Orange County (28), Riverside (43) and San Bernardino (31) with comparable bad loans. San Diego County has 85 properties that are heading in the wrong direction.

Apartments in Southern California that are in Pre-Foreclosure Status

If national trends are indicative of local results then southern California is destined for bigger problems ahead. Nationally the commercial default rate increased from 2.25% to 2.88%, a 13% increase from the first quarter of 2009 to the second quarter. Experts are predicting the default rate will increase from current levels to 4.1 by the end of this year to 5.2% next year, an annual projected increase of 27%.

The trend to watch when assessing the apartment default rate is the unemployment rate in the areas of Riverside, San Bernardino, San Diego, Orange County and Los Angeles. When folks lose their jobs they can’t pay their rent, which will cause apartment owners to default on their loans. The silver lining is another trend that is forming – the supply side of the equation which will be written about in a coming blog.

By Michael Duhs, Managing Broker of East West Commercial at (949) 939-8352, specializes in apartments for sale and senior housing in the counties of Los Angeles, Orange County, San Diego, Riverside and San Bernardino. East West Commercial is seeing its Commercial REO and Apartment REO business increase in southern California. Contact http://www.EastWestCommercial.com, http://www.CommercialREOs.tv, or http://www.REOapartments.tv for your source for properties available or coming to market. East West Commercial