Borrowers Having Difficulties Pay Commercial Real Estate Loans

April 11, 2012 / Elizabeth Buckley, Commercial Property Analyst

Those borrowers responsible for commercial real estate loans originated in 2007 are finding it difficult to maintain current payments. According to a leading expert in New York City the value of loans with late payments is $58.1 billion. Newly delinquent loans impacting the situation are worth $5 billion.

Borrowers Having Difficulties Pay Commercial Real Estate Loans

The one bright spot in commercial real estate was the Hotel delinquency rate, which decreased by 42 basis points. The rate for office property delinquency was at a record high of 9.41 percent, which is an increase of 37 basis points. Loans for multifamily property also increased.

A formidable forecast was made by one expert that these delinquency rates would increase. The five-year mortgage loans would be due increasing the rates. In the first two months of 2012, indications seemed to support optimism.

Other factors were the five banks that closed in March and the number of failures in the first quarter of this year. Sixteen closed in the first four months of 2012, which compares favorably to the 18 closings in the fourth quarter of 2011 and the 26 closings in the third quarter of 2011.

Some states fared worse than others. The current cycle started in 2007. In 2012 three failures happened in Georgia, with a total of 79 since 2007. Second in failure rate was Illinois with three this year and 49 since the current cycle. Michigan comes in at an infamous third. One failure occurred so far in 2012 with a total of 13 since 2007. As of today the rate of failures overall has decreased significantly. Unfortunately, additional banks are in a high-risk situation. This is an indication of further closures to come in the future.

The finger of blame points to commercial real estate as the main causative factor. In March problem loans in commercial real estate was 81.6 percent of the total. That translates to $167.6 million out of the total $205.4 million in failed loans at the failed banks.

Commercial mortgages were responsible for $123.7 million and construction loans for $43.9 million. Residential mortgages accounted for $19.6 million, which is only 9.5 percent of the total. C&I loans were 8.5 percent and customer loans that were unsecured, a minimal 0.3 percent.

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