Commercial landlords struggle to refinance

NEW YORK – Jan. 21, 2009 – Commercial landlords, even those with good credit, are finding it increasingly difficult to refinance their properties, says Real Estate Economics LLC President Sam Chandan.

Chandan, formerly chief economist of the real estate research firm Reis Inc., described this as “one of the significant challenges we face” in the new year. While delinquency rates remain “exceptionally low,” he notes that 5.4 percent of loans issued to commercial property investors in 1998 are now 30 or more days overdue.

Chandan remarks, “There’s something going on there. It’s not that the 1998 loans were underwritten in a way that was characteristic of the underwriting in 2007.” Barclays PLC estimates that about $270 billion of mortgages on office properties, retail stores and apartment communities must be refinanced this year.

With banks and insurers tightening standards across the board, though, default rates will almost certainly rise in the months ahead. Chandan forecasts that total commercial real estate delinquency and default rates will rise to between 5 percent and 6 percent by the end of the year.

Source: Bloomberg, David M. Levitt (01/15/09)

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