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Commercial Delinquency Deteriorating

Commercial Delinquency Deteriorating2.25% Q1 90-day delinquency at financial institutions

June 9, 2009

By staff

Between the end of last year and the end of this year, commercial mortgage delinquency is projected to more than double.

Delinquency of at least 90 days, including non-accrual loans, was 2.25 percent in the first quarter, according to a report from Real Estate Econometrics today. The rate jumped from 1.62 percent in the fourth quarter and 1.02 percent a year earlier.

The default rate was at its highest level since 1994.

The report was based on data from 8,246 financial institutions.

The report cited a deterioration in property cash flow — especially for vintage 2006 and 2007 loans — and limited availability of credit to refinance maturing mortgages as factors for the rise in delinquency. But loans originated five to 10 years ago are generally able to qualify for refinances — though even these vintages are facing more difficult conditions as “some lenders are seeking to diversify away from commercial real estate while others are lending only with existing relationships.”

Late payments are projected to climb to 4.1 percent by the fourth quarter and peak at 5.3 percent by the fourth-quarter 2011. The higher rate in 2011 is expected as a result of high loan-to-values, weak debt service coverage ratios and maturation of the 2006 and 2007 vintages.

A analysis of dollar volume data in the report indicated that approximately $1.075 trillion in commercial mortgages was held by the sampled institutions.

Based on 30-day dollar amounts reported, the rate of commercial mortgages delinquent between 30 and 89 days was around 1.37 percent, rising from the fourth quarter’s approximate 1.07 percent and the first-quarter 2008’s estimated 0.81 percent.

Real Estate Econometrics said multifamily delinquency of at least 90 days was 2.45 percent, up from 1.77 percent the prior quarter and 0.98 percent the prior year. Multifamily delinquency was projected to rise to 4.5 percent in the fourth quarter and peak at 5.5 percent in the fourth-quarter 2010.

Multifamily outstandings were roughly $0.210 trillion, based on’s analysis.

Delinquency of between 30 and 89 days on multifamily mortgages was approximately 1.37 percent, higher than around 1.14 percent in the fourth quarter and an estimated 0.75 percent in the first-quarter 2008.

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