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Commercial Real-Estate Loans Begin to Sour

Once a bright spot, commercial paper is looking grim

By Jim O'Neill, Newser User

Posted Jan 8, 2009 10:55 AM CST

(Newser) – Commercial real estate is beginning to feel the same pinch as the housing market, with delinquency rates rising in the fourth quarter and forecasts that they could reach the highest point in more than a decade by the end of 2009, reports the Wall Street Journal. Both individual mortgages held by banks and thrifts and bonds comprised of packaged mortgages have soured.

The $3.4 trillion commercial-mortgage industry—from apartment buildings to office space and shopping malls—is less than a third the size the $11.2 trillion residential-mortgage market, and had been thought to be less vulnerable to the downturn. But it's beginning to show the same signs of a speculative bubble bursting, as newer deals are souring at a faster rate than older ones, suggesting investors paid too much, and lending standards were too lax, at the height.

[Images (2)]

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Commercial real estate loans are souring at an increasing pace. (AP Photo/Kathy Willens)

A bicyclist rides near an American International Group office building in the Woodland Hills area of Los Angeles. (AP Photo/Nick Ut)

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Throughout this year, we're going to continue to see a significant acceleration of problem loans. CMBS prices already have priced in a far greater delinquency rate on the underlying loans." - Richard Parkus,
Deutsche Bank

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Commercial Real-Estate Loans Begin to Sour