National Real Estate Investor reports: With the default rate on commercial mortgages held by U.S. depository institutions projected to reach 5% this year and not peak until 2011, the extremely tight credit conditions imposed by banks on borrowers are not likely to loosen anytime soon. So says Dr. Sam Chandan, global chief economist and executive vice president with Real Capital Analytics (RCA).“If you believe that not only are we at a 15-year high in terms of the default rate of commercial mortgages being held by banks — but that there is the potential for that default rate to continue to climb over the next couple of years — then history tells us we must concede that credit conditions at least on the part of community and regional banks will remain unusually constrained over the next couple of years,” says Chandan.Real Estate Econometrics, recently acquired by New York-based RCA, forecasts that the default rate for commercial real estate mortgages held by depository institutions will reach 5.2% by the end of 2010 and peak at 5.3% in 2011. At the beginning of 2009, the national default rate stood at 2.25%.The root of the problem is that the U.S. economy has shed about 8.4 million jobs since December 2007. Such massive job losses have led to rising vacancy rates, falling rents and a sharp drop in net operating income for many owners of commercial and multifamily properties.“We have millions of jobs that we need to replace before we experience aggregate new demand for commercial space in a way that can allow for sustainable increases and improvements in the underlying performance of the properties,” emphasizes Chandan. “That’s problematic for us.”
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