Commercial Real Estate Default Rate Doubles As Banks Sit On $1.1 Trillion In Loans

commercial real estate

Commercial real estate mortgage default rates more than doubled in Q4 according to Real Capital Analytics (RCA), and will keep getting worse through 2011:


The default rate for loans on office, retail, hotel and industrial properties surged to 3.8 per cent from 1.6 per cent a year earlier, the New York-based real estate research firm said yesterday in a report. The default rate for loans on apartment buildings climbed to 4.4 per cent from 1.8 per cent.

Even if the overall economy rebounds, RCA thinks the situation can still get worse for commercial real estate regardless:

“The level of distress continues to rise irrespective of improving economic trends,” Sam Chandan, Real Capital’s global chief economist, said in a telephone interview. “With the concentration of commercial mortgages in small and community banks, there is a potential spillover that will impinge on their ability to make loans to small businesses and families,” Chandan said.

Almost $1.1 trillion in commercial loans and $211 billion in apartment loans were held by U.S. banks on Dec. 31, according to Real Capital.

Even just the uncertainty of potential future losses from commercial real estate loans could keep U.S. banks gun-shy when it comes to lending.

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