Legal Commentary

Commercial Loans Experience Delinquency Uptick

By Matt O'Brien

According to the November edition of Real Estate Forum, "CMBS delinquencies continued to climb for the second straight quarter ... [which] jumped 16.2%, with $1.9 billion in loans being late, up from nearly $1.7 billion during the second quarter. Of the overdue paper, loans originated in 2005 and 2006 saw the biggest hike."

The delinquency rates will only increase as commercial mortgage-backed securities reach their peak default period in the next three to four years. Of all types of commercial activity, retail delinquencies continued to rise the most. "At the end of the third quarter, the amount of retail property-backed loans delinquent was $408.8 million, a 56% increase from Q2 and a 90% increase since March," the article continued. Of course, the hardest hit retail loans were in areas where home values have fallen the most.

If CMBS continue to be delinquent and then later default, expect investors to get jittery about valuing these assets during uncertain economic times. However, at the same time, patient investors can scoop up these securities at a discount. Consider today's news in The Wall Street Journal that sales of all retailers excluding auto and parts dealers surged in November by 1.8%; economists expected a 0.7% increase. May be the economy won't slip into a recession after all.

These are some of the issues that will be discussed at IncreMental Advantage's March 25 & 26 real estate conference. For more information, please visit www.incrementaladvantage.com.

Full post as published by Vertical Pulse on December 13, 2007 (boomark / email).