Commercial Real Estate Loans Heading Into Default


Commercial real estate loans are heading into default at rates nearing the Great Recession.  In early April, Forbes Magazine reported “According to credit rating agency Fitch Ratings, CMBS loan delinquencies will spike between 8.25% and 8.75% by the end of the year’s third quarter, coming close to the peak of 9.01% in July 2011.”

Commercial Mortgage Backed Securities

In a recent report New York-based Trepp, LLC predicted the number of commercial real estate loans heading into to default will top 10% when the June numbers are reported. This will be the largest jump in CMBS delinquencies since they started tracking the data in 2009.

In May, Market Watch reported there was $32 billion in commercial loans sent to “special servicing”. They noted that the $550 billion CMBS market isn’t the biggest source of funding for U.S. commercial properties. But, it does offer early insight into the health of commercial real estate. As of one year ago, roughly 13.5% of the $3.5 trillion in U.S. commercial real estate debt is financed in the CMBS arena.

Dallas-Fort Worth Data

Steve Brown of The Dallas Morning News reported that in D-FW more than $900 million in commercial real estate loans are have become delinquent. According to Brown, this puts the Dallas-Fort Worth area 8th in the nation in commercial mortgage-backed securities debt.

In line with nation-wide statistics, most of these delinquencies are in the hospitality and retail industries. This is understandable as those are two of the hardest-hit industries in the pandemic. Industrial properties show the lowest rate of delinquencies. To put things in perspective, last fall the delinquency rate in DFW was 1%.

Right now these delinquent loans are not resulting in a large number of foreclosures. Most of these loans have been sent to special servicing. The servicers will negotiate with borrowers to try and bring the loan current. When this process is unsuccessful, the loan is moved into foreclosure.

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