In 2009, commercial loan defaults hit their highest level since 1993 and astonishingly doubled the number of 2008 defaults. In the fourth quarter alone, the commercial default rate rose 3.8 percent. In 2009, multi-family property default rates climbed from 1.8 percent to 4.4 percent.
Default rates for all combined forms of commercial real estate rose to 3.8 percent in 2009 and is projected to top 5.1 percent by the end of 2010 and 5.4 percent by the end of 2011. Chairperson of the Senate Oversight Panel for TARP said that 50 percent of commercial mortgages would be underwater by the end of 2010. Commercial real estate owners who leveraged their properties are in trouble as commercial real estate values decreased by as much as 29 percent in 2009.
At the end of 2009, U.S. banks held $1.1 trillion in commercial real estate paper not including $211 billion in multi-family mortgages. The nation’s smaller banks are carrying a 33 percent higher percentage of default loans. If these smaller banks absorb these losses, they will be unable to provide much-needed regional loans to local borrowers.
Delinquency rates in multi-family properties (13.19 %) and lodging properties (16.89%) lead all forms of commercial delinquencies. Industrial delinquencies increased 76 percent in year-over-year comparisons while lodging increased 88 percent. Retail and office space delinquencies rose by more than 70 percent over 2008 rates.
If you believe in the buy low and sell high basic real estate investment theory, this is your time to realize big opportunities. While there is no doubt buy low properties are out there, investors must make sure they can fill the commercial space.
Lenders may be receptive to shirt sales and creative financing packages but these lenders want to see occupied space. Many businesses are entering the investment world. As U.S. companies continue to shed jobs, their space requirements are changing and centralizing. Many of these companies are now positioned to convert from tenant to owner and banks could not be happier.