NEW YORK - Defaults of multifamily and commercial real estate loans from banks climbed to their highest rate since at least 2003, as lenders gave up hope of being repaid in full, according to a report by research firm Real Estate Econometrics.
The default rate of bank loans for shopping centers, office buildings, warehouses and hotels rose to 2.88 percent in the second quarter, up 0.63 percentage points from the prior quarter, according to the report released on Monday.
The default rate for apartment buildings rose 0.68 percentage points in the second quarter to 3.13 percent.
The research firm breaks out multifamily homes separately because of their residential use. The report was based on 8,195 institutions.
Real Estate Econometrics defines the default rate as the percentage of the dollar value of loans that are past due 90 days or more or that are in nonaccrual status -- that is the lender does not expect to receive full payment of interest or principal.
Although commercial loans that were 30 to 90 days delinquent fell $1.97 billion to $12.77 billion in the second quarter and those for multifamily fell $287.1 million to $2.59 billion, the picture did not get brighter. The amount of loans considered nonaccrual dwarfed the amount of payments late 30 to 90 days.
It tells me that they've got some loans that were delinquent, Sam Chandan, Real Estate Econometrics President and Chief Economist, said. They followed up on them, and they essentially made the decision that they know they're not going to recover on them.
Loans in nonaccrual status rose by $6.53 billion to $27.76 billion for commercial real estate. Multifamily nonaccrual rose by $1.33 billion to $6.04 billion.
The research firm expects the commercial real estate default rate to climb to 4.1 percent by the end of the year, 5.2 percent by the end of next year and peak at 5.3 percent in the fourth quarter of 2011.
For apartment buildings, Real Estate Econometrics sees the default rate reaching 4.5 percent in the fourth quarter of 2009 and peaking at 5.5 percent at the end of next year. The default rates are not expected to be below 4 percent through 2013, the report said. (Reporting by Ilaina Jonas; Editing by Gary Hill)