Forecast Shows Default Rate Gaining Momentum

By Allen Kenney
The rate at which bank loans on commercial real estate fall into default continues to accelerate, according to a new analysis from Real Estate Econometrics (REE).
REE estimated that 2.88 percent of commercial real estate loans were in default in the second quarter of 2009, up from 2.25 percent in the first quarter. Defaulted loans include those that are past due by 90 days or more. They also include situations in which lenders do not expect to receive full payment of interest or principal.
The default rate for 2009's second quarter more than doubled the year-earlier period's rate of 1.18 percent. REE is projecting the default rate will exceed 4 percent by the end of 2009 and surpass 5 percent in 2010.
"The current update underscores that while significant attention is being paid to the CMBS market, the  challenges facing bank lenders and policy makers in addressing the  performance of bank-held balances threaten to overshadow the relatively smaller securitization market," said Sam Chandan, REE's president and chief economist.