Analysis: Commercial Mortgage Defaults Continue to Climb

By Allen Kenney
The default rate on commercial mortgages more than doubled from 2008 to 2009, according to a report from Real Capital Analytics (RCA).
RCA's analysis of Federal Deposit Insurance Corp. data showed a default rate for commercial mortgages of 3.82 percent in the fourth quarter of 2009. A year earlier the rate stood at 1.63 percent.
The commercial default rate calculated by RCA didn't include multifamily mortgages, which saw defaults accelerate even faster in 2009, up from 1.77 percent in the fourth quarter of 2008 to 4.44 percent at the end of 2009.
Commercial defaults reached their highest level since 1993, and RCA projects they will continue to, cresting at 5.4 percent at the end of 2011. Meanwhile, RCA is predicting that multifamily defaults will hit their peak of 5.7 percent by the end of 2010.
"The current trends suggest that deteriorating multifamily and commercial mortgage performance has the potential to impact the broader economy, principally by constraining lending by regional and community banks in other areas, such as small business lending," said Sam Chandan, global chief economist and executive vice president with RCA.