The commercial real estate market is “at the precipice,” a report by Deutsche Bank said earlier this month. So far this year, delinquency rates are up to 1.8 percent of loans in March, more than four times the year-ago level.
Faring worst were retailers, office building owners and apartment buildings. Hotels and industrial properties posted more moderate increases.
Deutsche Bank’s Richard Parkus projects delinquency rates will keep soaring to more than 3.5 percent by year-end and as high as 6 percent by late 2010. He says the industry’s woes will be “at least of a similar magnitude as those that the commercial real estate faced in the early 1990s.”
Drops in property values of 45 percent from a peak in late 2007 are possible, Parkus said, exceeding those of the early 1990s, as demand for office, retail and other commercial space plummets amid a worsening economy.
Adding credence to those gloomy predictions, the government said Thursday that the U.S. economy shrank at a 6.3 percent annual pace at the end of 2008, the worst showing in a quarter-century.
Similar to the residential property market, foreclosures and defaults are surging, with nearly $19 billion in commercial real estate loans in default, foreclosure or bankruptcy so far this year, according to Jessica Ruderman, a senior analyst with Real Capital.
More than 20 metropolitan areas nationwide now have at least $1 billion in troubled commercial loans, she said, up from five at the end of last year. Landlords in Las Vegas, Manhattan and Los Angeles are struggling the most.
Read the full article “Commercial loan defaults jump nationwide” in ChicagoRealEstateDaily.com (March 27, 2009).