Saturday, February 13, 2010

Commercial Delinquency Rising

Commercial Mortgages have hit a new monthly high in delinquencies at 5.42% as can been seen in the chart below.


It is important to note that while we have been talking about the commercial real estate "problem" for a while now there have been no solutions that have come forth to try and fix it.

Thus, the $500 billion in loans that are set to roll over during the next three years should face some problems in that estimates show over 50% of commercial real estate to be under water by next year.

The following chart shows the breakdown of delinquency by the different commercial real estate types:


As you can see, the apartment and hotel sectors are currently seeing a rapidly rising delinquency rate.  These were the properties that saw the most flexible loan terms during the bubble years.

The apartment market, in my mind, will represent the greatest buying opporunity once we see the real collapse in property values. The reason for this is simple logic: our population continues to grow and those people will need a place to live.

You may also note that the deliquency rate is the highest in the South.  That is why I live in Charlotte, a city facing extreme short term pain that has tremendous growth potential over the next 20 years. (Much more to come on that in the future)

Office and Retail are facing challenges in that many businesses can now work from home, and many consumers can shop from home. Once oil prices begin surging again in 2012-2013 when we face the coming supply crisis, working and shopping from home will become far more appealing.

The buying opportunities in the apartment market will come when the FDIC sells the assets they acquire from failed banks into the open market.

Until then, sell your home, sell your buildings, and sell any securities that invest in any form of mortgages.

We ain't seen nothing yet.

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