Commercial Mortgage Defaults Near Record High

Monday, 03 May 2010 02:32 PM

By Dan Weil

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Commercial real estate defaults are approaching a record high, and depending on your point of view, that’s either a positive or a negative.

It’s a positive if you see it as a buying opportunity for distressed investors, and it’s a negative if you already hold the securities backed by commercial mortgages.

Fitch Ratings expects more than 11 percent of the $536 billion of loans packaged into commercial-mortgage-backed securities to be at least 60 days past due by Dec. 31, The Wall Street Journal reports.

The late-payment rate has jumped to 7 percent in the last year, because landlords have been forced to cut rent or have been stiffed on rent payments.

That’s making it difficult for property owners to keep servicing their debt. And the stagnant market for new commercial-mortgage-backed securities has made it impossible to refinance some debt as it comes due.

As a result, bondholders are confronted with bigger losses, and property owners and lenders face strong impetus to restructure their loans.

Fitch anticipates a $4.2 billion deal underwritten in 2006 by Goldman Sachs and Greenwich Capital, will produce a 11.7 percent loss, the highest of any 2006 deal it examined, the Journal reports.

Donald Trump, for one, sees the hard times as a buying opportunity.

“It’s a time when if you have cash, you can make some fantastic deals,” he told CNNMoney.com. “We’ve been buying a lot of things that I never thought would be buyable.”

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