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Tags: Commercial | Mortgage | delinquencies | high

Commercial Mortgage Delinquencies Hit All-Time High

By    |   Monday, 09 July 2012 09:18 AM

Home loans aren't the only mortgages going bad these days.

The delinquency rate for commercial mortgages reached an all-time high of 10.16 percent in June, according to research firm Trepp LLC.

"Driving the rate up has been the fact that only 28 percent of the loans from 2007 due to mature in 2012 managed to pay off in full," says Manus Clancy, senior managing director at Trepp, in a press release.

Currently, $59 billion in loans are delinquent, not counting loans that are past their balloon date but still paying interest. There are $75.9 billion of loans with special servicers who foreclose or modify the loans.

Unlike most home loans, commercial mortgages are typically balloon loans due in full after a short term, of five, seven or 10 years.

Many of the mortgages that have come due are "zombie loans," according to The New York Times. Although they are now due in full, they cannot be refinanced because of lower property values, so servicers simply extend the loan terms.

Increasing delinquencies show how bad lending became during the boom, the Times says. For example, $204 million requiring $12.7 million of interest was lent to a group of Manhattan apartment buildings that had generated $5.4 million of cash flow the year before. Lenders didn't mention to investors that the apartment owner was under investigation for improper rent-raising tactics, the Times notes.

The good news, according to Trepp, is that most of the five-year loans made in 2007, at the peak of the frenzy, were made in the first half of the year, meaning that they have already come due, and delinquencies will drop sharply toward the end of the year.

"Just as the heat should break by September, investors should see some relief, too, Clancy says.

But property owners that can refinance can make out well, according to The Wall Street Journal. For instance, General Growth Properties, a giant mall operator, refinanced $3.1 billion lowered its interest rate from 5.24 percent to 4.2 percent.

"If you have a trophy property in a 24-hour market, you're in a sweet spot now because (rates) are so low," Clancy tells the Journal.

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Monday, 09 July 2012 09:18 AM
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