The default rate for commercial real estate loans held by banks reached the highest in 16 years and the outlook looks worse, according to a report by a research firm released on Monday.
The picture for loans underlying commercial mortgage-backed securities looks as bleak, according to another report.
The national default rate for commercial real estate mortgages held by banks and other depository institutions reached 3.4 percent in the third quarter, up 0.52 percentage point from the second quarter, according to research firm Real Estate Econometrics.
It was the largest one-quarter increase since quarterly data became available in 2003.
At 3.4 percent, the U.S. default rate for commercial real estate mortgages — on office, industrial, hotel and retail properties — held by banks, thrifts and other depository institutions was the highest since 1993, when the default rate was 4.1 percent.
The default rate is the percentage of loans on a dollar basis that are past due 90 days or more or that are in non-accrual status, meaning lenders don’t expect to be repaid in full, according to Real Estate Econometrics.
For apartment buildings, the default rate was reached 3.58 percent, up from 3.14 percent in the second quarter. The default rate on multifamily mortgages also has more than doubled over the last year.
Some banks that had large exposure to commercial real estate are not suffering because they had strong risk management practices, conservatively analyzed loans and had in-place structures that hold someone accountable for the loan.
Real Estate Econometrics sees the default rate for commercial real estate mortgages held by depository institutions hitting 4.0 percent in the fourth quarter of 2009, about 5.2 percent by the end of 2010, and peaking at 5.3 percent in 2011.
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