Report Suggests Commercial Property Distress May Be Close To Peak

A substantial number of distressed commercial propery loans were resolved and/or restructured in July 2010, resulting in the lowest monthly increase in distressed commercial property loans since late …

A substantial number of distressed commercial propery loans were resolved and/or restructured in July 2010, resulting in the lowest monthly increase in distressed commercial property loans since late 2008. With foreclosed property levels dropping for the second time, and small decreases in the number of distressed properties in the apartment and retail sectors, some analysts think that July trends could be a signal that outstanding distressed market may be peaking. See the following article from HousingWire for more on this.

Distressed commercial properties increased $5.1 billion in July, the lowest addition since October 2008, according to the research firm Real Capital Analytics.

The July additions were also less than half the monthly average for all of 2009 and through 2010 so far. The total amount of distressed commercial loans stands at $189.1 billion.

“Distress trends in July offer some evidence that the levels of outstanding distress may finally be near the peak,” according to the report.

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More than $4 billion in commercial loans were either resolved or restructured, offsetting the July increases of distressed properties.

“Most of that increase can be attributed to the industrial and hotel sectors, while the retail and apartment sectors registered small declines in distressed levels during July,” according to Real Capital.

Trepp, Moody’s Investors Service and Fitch Ratings both have the August delinquency rate on commercial mortgage-backed securities (CMBS) loans near 9%, but both firms have seen loan modification increase. Fitch reported today that the amount of commercial modifications reached a new record in August.

For those loans that can’t resolved, more are moving out of the foreclosure process and into REO. The commercial REO inventory held by lenders increased $1 billion in July to $33.6 billion total.

Meanwhile, those still moving through default, foreclosure bankruptcy or the special servicing process declined slightly to $155.5 billion. It’s only the second time since August 2008 that this volume has dropped.

Roughly 30% of the $82.4 billion in commercial loans that have entered the distressed volume this year has been worked-out. Of this, $39.5 billion were resolved through new financing or a sale, while the other $42.9 billion has been restructured.

This article has been republished from HousingWire. You can also view this article at
HousingWire, a mortgage and real estate news site.

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