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blake303 (28.62)

CMBS Delinquencies Hit 4%

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November 17, 2009 – Comments (5) | RELATED TICKERS: VNO , SPG , BXP

Suggestions that CRE defaults are the next shoe to drop are nothing new. I was way too early to the party and my CAPS score has taken a beating. However, the data is starting to catch up with the speculation. Moody's reports that CMBS delinquency rates surpassed 4% through the end of October, which is twice the amount projected by Fitch last December. Multifamily and hotels, which both topped 6%, had the highest rate of non-performing loans. Delinquency rates have already surpassed 10% in the usual suspects, Michigan and Nevada, and the South is not far behind. Whether or not CRE defaults are the catalyst for the correction so many have been calling for remains to be seen, but it certainly can't help.

5 Comments – Post Your Own

#1) On November 17, 2009 at 6:40 PM, blake303 (28.62) wrote:

I should add that I am not interested in discussing the end of days. If you speak exclusively in caps & exclamation points or cannot fathom a trend reversing itself at any point in the future, please hit your back button. 

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#2) On November 17, 2009 at 7:08 PM, floridabuilder2 (98.10) wrote:

unfortunately Blake, since i follow strictly residential, i did not realize the time frames in which CRE mortgages renew.  there are many games a bank can play, but at the end of the day CRE can't double in value from a 50% fall thus making the loan back to original.  2010 will, IMHO, represent the 2nd downward movement in the W shape. 

I agree with your #1 comment too

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#3) On November 17, 2009 at 7:37 PM, blake303 (28.62) wrote:

FB - I am in total agreement on a 2010 W.

Residential and commercial are very different animals. In my experience, the excesses in commercial lending come no where near the stupidity that occurred on the residential side, which is not to say the lending was conservative. The problem is that size of many of the stupider CRE deals equate to thousands of residential mortgages.

Unlike many homeowners, some commercial borrowers have the capacity to pay down loans, put up additional collateral, or even issue equity as REITs have been lately. Owners may be able to limp along a property with negative cash flow until the market turns, but how long this can be sustained will vary widely. Like you, I do not care to make predictions, but I see the deterioration speeding up recently.

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#4) On November 17, 2009 at 8:32 PM, floridabuilder2 (98.10) wrote:

It will be interesting and there is huge amounts of equity on the sidelines waiting to step into the positions that go become non-performing.  Unlike residential, commercial will take a big hit but there are a lot of international players that will keep a floor on prices due to the sheer volume of demand for distressed commercial.  that is why I like distressed residential, because fewer dollars chasing it which means a bigger fall in price/value

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#5) On November 17, 2009 at 10:42 PM, angusthermopylae (37.78) wrote:

I tend to be a short-term doom and gloomer, but:

Some of us (including myself) are looking at scooping up property after the second crash.  If CRE goes down, I imagine other types of real estate would take a collateral hit, too.

With that in mind, there's a piece of property next door that should come on the market about the time this starts to shake out.  The current owner is clear-cutting the land for wood, and it's not much good for anything else after that.

He's already spoken to us about selling it afterwards.  Buy cheap, let the trees grow, and BAM!  In 80 or so years, my kids' kids (or even their kids) will have a veritable fortune...

(only half-kidding)

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