Some good news from the commercial real estate market. The percentage of delinquent commercial properties held by banks has decreased in the last two years, according to Trepp LLC, a research firm out of New York.
In Chicago, the delinquency rate dropped 0.06% in the second quarter compared to the first and is an improvement of 0.08% from a year ago. Despite the modestly positive news, it is still a long way from the 2% delinquency rates that held steady before the recession, and is also 2.2% higher than the national average.
During the recession when spending in the nation declined, a cycle began in which many retail spaces went empty resulting in high vacancies and low cash flows to owners. This in turn forced property owners into delinquency. As the delinquencies rose, banks losses grew and their ability to lend declined. In turn, the credit markets froze which left loan borrowers unable to refinance. Slowly, the markets are thawing and banks are working out their delinquencies and lending again to high-quality borrowers.
Nonetheless, many banks have still not resumed lending activities to new buyers of commercial property or to owners who need refinancing, so a drastic recovery in the market is not expected. Investors who are currently buying depressed properties have to consider leasing them out and for now. Only time will tell as we wait to see if the recent recovery in other real estate sectors and the economy as a whole translates to a recovery in the commercial real estate market.
Michael Hobbs, SRA PahRoo Appraisal & Consultancy
Twitter: @PahRoo
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