Wednesday, December 2, 2009

U.S. Commercial Property Loan Defaults Soar

More evidence from Reuters of the brilliant economic turnaround underway courtesy of Messrs Bernanke and Geithner.

It is time for the Obama Administration to stop blaming President Bush for the still deteriorating U.S. economy. Read this excellent blog post by someone who agrees with me on this.

Plus, I don't get the criticism of Bush here either. Remember that both Geithner and Bernanke were part of the Bush Administration too. It seems Mr. Obama just hired the same second string quarterbacks to run his economic plays and has really no one else to blame here but himself.

It was President Bush who appointed Timothy Geithner to run the Fed bank in New York in October 2003. It was Geithner in 2008 who "saved" Bear Sterns, "rescued" AIG, and let Lehman Brothers "die."

Benjamin Bernanke was President George Bush's Chairman of the President's Council of Economic Advisors from June 2005 to January 2006. It was also Mr. Bush who appointed Bernanke to the top spotat the Fed.

Robert J. Abalos, Esq.

US commercial property loan defaults soar-reports

Mon Nov 30, 2009 11:59pm EST

* Commercial real estate bank-loan defaults hit 3.4 pct

* Real estate bank loan defaults may peak at 5.3 pct

* CMBS defaults reach 4.01 pct in October

* CMBS defaults could top 8 pct in 2010

By Ilaina Jonas

NEW YORK, Nov 30 (Reuters) - The default rate for commercial real estate loans held by banks reached the highest in 16 years and the outlook looks worse, according to a report by a research firm released on Monday.

The picture for loans underlying commercial mortgage-backed securities looks as bleak, according to another report.

The national default rate for commercial real estate mortgages held by banks and other depository institutions reached 3.4 percent in the third quarter, up 0.52 percentage point from the second quarter, according to research firm Real Estate Econometrics.

It was the largest one-quarter increase since quarterly data became available in 2003.

At 3.4 percent, the U.S. default rate for commercial real estate mortgages -- on office, industrial, hotel and retail properties -- held by banks, thrifts and other depository institutions was the highest since 1993, when the default rate was 4.1 percent.

The default rate is the percentage of loans on a dollar basis that are past due 90 days or more or that are in non-accrual status, meaning lenders don't expect to be repaid in full, according to Real Estate Econometrics.

For apartment buildings, the default rate was reached 3.58 percent, up from 3.14 percent in the second quarter. The default rate on multifamily mortgages also has more than doubled over the last year.

Real Estate Econometrics Chief Economist Sam Chandan said commercial real estate lending should not be generalized.

"Don't say it's a regional bank problem," he said. "The conditions of each bank need to be evaluated on their own merit."

Some banks that had large exposure to commercial real estate are not suffering because they had strong risk management practices, conservatively analyzed loans and had in-place structures that hold someone accountable for the loan.

The balance of bank-held commercial mortgage loans 90 days or more past due rose to $4.4 billion in the third quarter from $3.5 billion in the second.

Real Estate Econometrics sees the default rate for commercial real estate mortgages held by depository institutions hitting 4.0 percent in the fourth quarter of 2009, about 5.2 percent by the end of 2010, and peaking at 5.3 percent in 2011.

For CMBS loans, delinquent unpaid balances rose 2.6 percent in October from September to $32.55 billion, a whopping 504 percent increase over last year and 14 times higher than the low point of $2.21 billion in March 2007 -- the height of the U.S. commercial real estate boom, according to rating agency Realpoint.

The delinquency ratio for October 2009 reached 4.01 percent, up from 3.94 percent in September and more than six times the 0.54 percent a year earlier.

Realpoint sees delinquent unpaid CMBS balances continuing along the current trend, reaching $40 billion to $50 billion before the end the first quarter of 2010. It sees the delinquency percentage growing to between 5 percent and 6 percent through the first quarter of 2010.

It could potentially surpass 7 percent to 8 percent in 2010, as several large loans issued in 2006 and 2007 continue to show signs of stress and older loans mature without prospects of being refinanced. (Editing by Steve Orlofsky) (( ; +1 646 223 6193; Reuters Messaging: ))