Commercial Project Mortgage Default Rate Peaks

Commercial finance and mortgage default rate reached 3.82% during 4th quarter of 2009, the highest seen since 1993 when it was 4.1% according to Real Capital Analytics. This represents a significant portion of banks’ losses in the last two years. Furthermore, the amount of “problem” lenders reached a 16-year high of 702 institutions. Financial advisor analysis shows that 2010 will demonstrate an even larger number of commercial projects on the problem list, possibly peaking in 2011 at 5.4%.

These numbers indicate that an important contributor to realized losses for banks lies in the bank’s institutional capacity in managing and funding commercial projects under mortgage distress. Moreover, traditional lending sources will tighten up on criteria needed to fund commercial projects. Business professionals, high level executives, and financial professionals are seeking private placement requirements to use private placement programs to finance or fund their commercial projects. While some have found success in private placement transactions, others have turned to venture capital, private money lenders, and alternative investments for project finance solutions. Accordingly, $14.1B in multifamily properties (an area hit hard in the last 2 years) was sold via traditional mechanisms according to Real Capital Analytics. Private investors were the most active buyers representing close to 75% of purchases, REITs were second at 6%. Coming in 3rd were foreign investors (4%) seeking diversification for asset management strategy and wealth management protection.

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