In Commercial Real Estate, Signs of Moderating Pain
New data points are painting a picture of slowly moderating pain in commercial real estate.
The delinquency rate for securitized commercial real-estate loans fell in October for the first time in more than a year, data firm Trepp LLC reported on Tuesday. The drop came as distressed loans were being liquidated at a more rapid pace, Trepp said. The biggest reason for the decline: the exit from bankruptcy in October of hotel chain Extended Stay America Inc.
The month-to-month drop of 0.47 percentage points in the delinquency rate, to 8.58%, could mean that the "special servicers" charged with working out bad loans on office towers, shopping malls and other kinds of commercial property are getting a better grip on how to deal with the fallout from the real-estate bust. Indications that rents and vacancy rates in commercial real estate are close to stabilizing could also encourage holders of foreclosed property to sell rather than wait.
Mostly thanks to Extended Stay, delinquency in the hotel sector plunged the most in October-by 4.41 percentage points to 14.92%. The rate for multifamily apartments crept up slightly, to 14.63%, while the retail, office, and industrial-sector delinquency rates stayed well below that level, at 7.17%, 6.68%, and 6.27%, respectively.
The new data from Trepp comes on the heels of a Real Capital Analytics report last week that said that the amount of new distress in commercial real estate in the third quarter was the lowest in two years. Some $13.7 billion of distressed situations-such as foreclosure notices, bankruptcies and loan defaults-hit the U.S. commercial real estate market in the third quarter, a roughly 60% decrease from levels seen both in the second quarter of 2010 and the third quarter of last year, the New York research firm said.
Make no mistake, though: Things are still bad. A total of $58.3 billion of the commercial-mortgage loans sliced and diced on Wall Street are currently delinquent, Trepp says. The delinquency rate of 8.58% is still nearly twice as high as the year-ago level of 4.8%.
