Delinquency rates for commercial mortgage-backed securities (CMBS)–that is commercial mortgage loans backed by office buildings, retail stores, hotels, and apartment buildings–that have been packaged into securities and then sold to investors–rose to 3.04% in July, according to Fitch Ratings. That’s the highest level since Fitch began tracking this sector in 2001.
The loans that Fitch follows in this sector represent $480 billion, or about two-thirds of the CMBSÂ market.
Deliquencies haven’t stopped rising either. Fitch projects that they will hit 5% by the end of the year.
The danger is that these delinquencies will set off another round of balance sheet explosions as banks, insurance companies, pension funds,and other investors have to write down the value of CMBS they hold on their books. A rising tide of delinquencies among commercial mortgages themselves would hit small and regional banks hardest since they have the biggest exposure, in relation to the size of their portfolios, to the commercial morgage market.
Jim, thank you for covering this – I would like to get more of your thoughts on this, and its relation to commercial construction – I really enjoy your critical thinking commentary and your coverage of markets. I work in commercial construction, and we are seeing the beginnings of a potential tidal wave with ripple effects (to mix my metaphors-sorry) in our industry. As the second largest employer (only to the government) I am concerned that the potential impacts are not fully realized here…. North Texas has been insulated to an extent regionally from the housing chaos, but this issue (commercial loans) will be an across-the-board slice to a lot of throats… I am very leery, to say the least, of the impacts this can have to our nation! Keep up the good work, really enjoying the new site.
Jim,
Great to have you back. Your absence was noticed by many.
On an unrelated topic (and I am not sure you even care) but on MSN they just posted the performance results for the Jubak Picks for the 2nd quarter and I think the 1 year and the 3 year numbers for the Jubak Picks are wrong.
In any event, welcome back.
Gary D.
Are these delinquencies due to businesses failing under the current economic pressures, or because of the same types of loan practices that happened in the housing market?