Delinquency rates at hotels, office buildings have more than doubled
(Source: Associated Press)
Even as banks grapple with rising foreclosures, many lenders have something else to worry about: A rising tide of potential losses from commercial real estate loans that could reach into the billions.
Delinquency rates and defaults on office and retail buildings and hotels have more than doubled in just six months. For apartments and industrial buildings, the rates have increased more than 80 percent, according to Reis Inc.
While homeowners are defaulting at almost four times the rate of commercial landlords, the sudden spike in late payments has many industry insiders worried about the collateral threat to the economy and financial system. Nearly $73 billion worth of commercial real estate loans are in some level of financial distress, according to Real Capital Analytics.
The risk to the economy is unknown, but likely underestimated in the government’s stress test of 19 major banks. The results released last week projected that should the recession worsen, the losses from commercial real estate loans could hit $53 billion, or 8.5 percent of their overall loan losses over the next two years.
The exercise notably left out the majority of the regional and local lenders, which hold a big chunk of the nation’s $3.5 trillion commercial property loans on their books and remain vulnerable.
Read the full article “Worries growing about commercial real estate” in MSNBC (May 12, 2009).