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Defaults Reach 16-Year High

NEW YORK CITY-Commercial mortgages in default climbed 234% year over year to end 2009 at 3.82%, according to Real Capital Analytics.

By Paul Bubny | Updated on February 23, 2010

NEW YORK CITY-With $4.5-billion rise in volume during the fourth quarter, the default rate on commercial mortgages reached 3.82% at the end of 2009, the highest since the 4.1% default rate last seen in 1993, said Real Capital Analytics in a report released late Tuesday. Given that the Federal Deposit Insurance Corp. has said that banks’ losses are largely driven by commercial real estate loans, it stands to reason that the agency said on Tuesday that its list of “problem” lenders similarly reached a 16-year high of 702 institutions.

However, neither commercial mortgage defaults nor the number of institutions on the FDIC’s so-called “Problem List” have peaked. According to published reports, FDIC chairman Sheila Bair said she expects more bank failures this year than there were in ’09, which itself saw the highest number since 1992. Bair says increased losses on commercial real estate exposure will be largely to blame.

And Sam Chandan, global chief economist and EVP at RCA, tells GlobeSt.com, “We project that default rates for commercial mortgages will rise to 5.1% by year-end 2010 and will peak at 5.4% by year-end 2011.” He adds that these projections assume “limited additional policy intervention in support of bank lenders with concentrations in commercial real estate.”

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