CLEARWATER, Fla., Dec. 20 /PRNewswire/ -- According to industry experts, the commercial real estate market (which includes shopping centers, strip malls, apartment buildings, office buildings and warehouses) is due to suffer the same fate as the recent collapse of the housing market only worse. Commercial research provider Trepp found that delinquent loans in commercial mortgage securities jumped 85 basis points to 5.65 percent at the end of November, up from just 4.8 percent a month earlier.
In addition, the Mortgage Bankers Association's (MBA) Commercial/Multifamily Delinquency Report showed that between the second and third quarters of 2009, the 30-plus day delinquency rate on loans held in commercial mortgage-backed securities rose to 4.06 percent. The 60-plus day delinquency rate on loans held in life company portfolios rose to 0.23 percent. And according to Credit Suisse analysts, installments on $22.4 billion of mortgages were 60 days late.
The increase in delinquency rates is expected to continue through next year and peak in 2011. There is about $300 billion in negative equity overhang that needs to be refinanced in 2010 and 2011. These numbers will only continue to increase as around $2 trillion in commercial mortgages are expected to come due for payment within the next five years.
"What we are seeing now is the perfect recipe for disaster in the commercial real estate market in 2010," said Jeramie Concklin, Chief Executive Officer of Guardian Solutions, a commercial loan restructuring company. "A huge number of balloon payments for commercial property loans are coming due in 2010 and 2011. With vacancy rates at high levels, unemployment soaring and commercial property values plummeting, commercial property owners are not going to be able to service their debt without serious restructuring of their loans and business. Property owners need to prepare now in order to avoid default."The United States Government has already taken steps in an effort to curb the impact of the impending commercial real estate meltdown. The IRS has removed adverse tax consequences to investors that grant commercial loan modifications to owners, opening the opportunity for loan restructuring without imposing tax consequences to investors. The Federal Reserve also stepped in, pushing new interagency guidance on restructuring commercial real estate loans.