According to Real Capital Analytics, a research company that tracks commercial real estate trends, the default rate on commercial real estate loans increased to 3.8% from 1.6% a year ago. Moreover, separately assessed in its own category, the default rate on loans tied to multifamily properties escalated to 4.4% from 1.8% a year ago.
The New York based research company concludes that there are 8,942 commercial properties that are classified as “distressed” throughout the United States.
Further based upon their research, without additional policy intervention, default rates on office, retail, hotel and industrial properties are expected to rise to 5.1% from 3.8% in 2009 and will peak at 5.4% at the end of 2011. In the multifamily sector, the company anticipates the defaults to peak at 5.3% by the end of this year.
Notably, Research Capital Analytics opinions that smaller institutions with $100 million to $10 billion in assets will likely suffer the most defaults-given the fact that 33% of their assets are concentrated in the commercial real estate sector. Contrastingly, top-tier banks may hold 48.3% of the outstanding commercial real estate loans, but only have 12.5% of there assets in that sector and have a smaller percentage of loans defaulting.
According to Sam Chandan, Real Capital’s global chief economist, “the level of distress [in the commercial sector] continues to rise irrespective of improving economic treads.”
Perhaps surprisingly, these improving trends include a 4.1% gain in commercial property values in December 2009-the largest jump ever observed by Moody’s Investors Service in the 10 years it has been tracking the price movements of the commercial property sector.
[Data Source: DSNews.com, 2/24/2010]
Commentary:
If the commercial real estate market has bottomed, than where are the “real” purchasing opportunities? Everywhere. Especially in those assets classified as “distressed” but also in those that have no such classification. Today’s CRE market is substantially different than it was prior to September 2008. Savvy, informed and cash-flushed investors will reap the benefits of acting prior to the competition increasing both in scope and numbers. To learn about such opportunities in the New York City area, email us at: mohare@frandimapropertiesllc.com.
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