Richard Parkus of Deutsche Bank has updated his Commercial Real Estate outlook with Q2 data. Check out how much the situation has deteriorated since the end of Q1.
First, here’s where things stood at the end of Q1. The lines on the chart are the percentage of loans that are delinquent, measured by length of delinquency (the black line is the average). Deutsche Bank (bearish) was looking for 3.5% average delinquency by the end of the year.
And here’s where they were at June 30. Deutsche Bank is now looking for 6%-7% delinquency by the end of the year.
Note that these problems have nothing to do with “liquidity.” (Remember earlier this year, when Tim Geithner was blaming everything on a “lack of liquidity”?) These loans are going bad because the real estate companies can’t make their interest payments–because the tenants can’t pay their rent.
Richard summarizes the situation:
Loan Performance Deteriorating Precipitously
- Speed of deterioration in loan performance is unprecedented, even relative to the early 1990s
- Total delinquency rate reached 4.1% in June, 2.2 times its March level and 3.5 times that in December
- Delinquency rates are likely to soar higher over next 24+ months on billions of dollars of pro forma loans that never stabilised and resetting partial IO loans
- With 2,158 delinquent fixed rate loans ($27.9 billion) special servicers may soon be under pressure
- DB CMBS Research projects term losses will reach 4.3-6.3% for the outstanding CMBS universe ($31.3-$46.4 billion), and 8.4-12.1% for the 2007 vintage
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