Will Comercial defaults have as great of an impact as subprime?
Here are some articles to read while considering.
Finance and Economics Discussion Series
Divisions of Research & Statistics and Monetary Affairs
Federal Reserve Board, Washington, D.C.
Although this was published in Nov. of 2008 I think it's clear that things are not good!
The mortgage market began suffering serious problems in mid-2005. According to data from the Mortgage Bankers Association, the share of mortgage loans that were “seriously delinquent†(90 days or more past due or in the process of foreclosure) averaged 1.7 percent from 1979 to 2006, with a low of about 0.7 percent (in 1979) and a high of about 2.4 percent (in 2002). But by the second quarter of 2008, the share of seriously delinquent mortgages had surged to 4.5 percent. These delinquencies foreshadowed a sharp rise in foreclosures: roughly 1.2 million foreclosures were started in the first half of 2008, an increase of 79 percent from the 650,000 in the first half of 2007 (Federal Reserve estimates based on data from the Mortgage Bankers Association).
http://www.federalreserve.gov/Pubs/feds/2008/200859/200859pap.pdf
Fed Program to Aid Commercial Real Estate Slow to Produce Deals
The fourth monthly deadline under the Federal Reserve’s Term Asset-Backed Securities Loan Facility aimed at commercial real estate is today, and no deals have emerged.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aelJw9Jbp61A
U.S. Commercial Mortgage Defaults May Rise to 17-Year High
June 9 (Bloomberg) -- The default rate on commercial mortgages held by U.S. banks may rise to the highest in 17 years in the fourth quarter as debt for refinancing remains scarce and the recession drags down rents.
The rate is likely to reach 4.1 percent by year-end, Real Estate Econometrics LLC, a New York-based property research firm, said in a report today.
“The dramatic decline in real economic activity and labor markets since last September has undercut property fundamentals,†wrote Sam Chandan, chief economist of Real Estate Econometrics. The decline puts an increasing number of loans “at risk,†he said.
The projection implies defaults on about $44.3 billion of commercial mortgages, based on the $1.08 trillion of such loans held by U.S. banks in the first quarter, according to Chandan and Bloomberg calculations. Commercial defaults already are at a 15-year high after climbing to 2.3 percent in the first quarter, or $3 billion, from 1.6 percent at the end of 2008, according to the firm’s analysis of Federal Deposit Insurance Corp. data.
http://www.bloomberg.com/apps/news?pid=20601206&sid=a7pUfRPFjS7Q
Commercial Mortgage Defaults Jump for U.S. Banks (Update2)
Aug. 31 (Bloomberg) -- The default rate on commercial mortgages held by U.S. banks more than doubled in the second quarter from a year earlier amid falling rents and occupancies for malls, office buildings and warehouses.
Loans that were 90 days or more past due climbed to 2.88 percent of outstanding balances in the second quarter, from 1.18 percent a year earlier, according to New York-based property research firm Real Estate Econometrics LLC. Defaults increased from 2.25 percent in the first quarter.
“A delinquency may have resolved itself two years ago,†said Real Estate Econometrics President and Chief Economist Sam Chandan. “Today, even one missed payment may be more indicative of an underlying problem, so banks have to be very proactive in addressing the issue.â€
Banks held $1.087 trillion of commercial property loans in the quarter, up from $1.077 trillion in the previous three months. That’s almost 15 percent of all loans and leases held by banks, Real Estate Econometrics said. Defaults are rising both for lenders who hold commercial mortgages and for bondholders in the $700 billion U.S. market for securities backed by commercial mortgages.
The CMBS market accounts for about 22 percent of the nation’s $3.4 trillion in commercial real estate debt, according to the Real Estate Roundtable. Defaults and late payments on loans bundled into CMBS could surpass 7 percent by the end of this year, research firm Reis Inc. said on July 30.
Falling Behind
Banks are beginning to recognize that more past due commercial property loans are unlikely to be paid in full. Commercial mortgages labeled as “non-accrual†more than doubled in the second quarter from a year earlier, to $27.76 billion, according to Real Estate Econometrics. The figure reflected a 31 percent increase from the previous three months.
http://www.bloomberg.com/apps/news?pid=20601103&sid=a9FRZ6ipJB8Y
Commercial Mortgage Defaults Have Another Year Before Bottoming Out, Report Says
http://www.observer.com/2009/real-estate/commercial-mortgage-defaults-have-another-year-bottoming-out-report-says
FDIC chief sees commercial mortgage threat
http://sanjose.bizjournals.com/sanjose/stories/2009/08/31/daily42.html
Commercial Mortgage Defaults to Continue to Rise
Sep 9, 2009 11:23 AM
http://retailtrafficmag.com/charts/0909-commercial-mortgage-defaults-rise
Banks' Commercial Mortgage Denial Worries Fed
http://www.dsnews.com/articles/banks-commercial-mortgage-denial-worries-fed-2009-10-09
The Federal Reserve Board
Reports on commercial real estate markets indicated that demand for space remained weak and that construction continued to decline in all Districts. Atlanta, Philadelphia, Richmond, and San Francisco reported that vacancy rates increased, while rates held steady in the Boston and Kansas City Districts and were mixed in New York. Boston, Dallas, Kansas City, Philadelphia, and Richmond commented that the demand for space remained weak. Commercial rents declined according to Boston, Chicago, New York, Philadelphia, and Richmond. Rent concessions were reported in the Richmond and San Francisco markets, and Richmond noted that some landlords had postponed property improvements in an effort to conserve cash. Construction remained at very low levels, with modest improvements noted in public construction in the Chicago, Cleveland, and Minneapolis Districts.
http://www.federalreserve.gov/fomc/beigebook/2009/20090909/default.htm