The Next Shoe To Drop?: Commercial Real Estate Defaults Double

Real Estate Econometrics LLC says commercial mortgage default rate on loans held by U.S. banks more than doubled to 3.4% in the third quarter as vacancies rose and rents declined.

Defaults climbed from 1.37% a year earlier and from 2.88% in the second quarter, the New York-based property research firm said today in a report.

Default rates in the first three quarters of 2009 have been the highest since 1993, the firm said.

“Mortgages originated in 2006 and 2007 are experiencing the most significant shortfalls in current cash flow relative to current debt-service obligations,” Sam Chandan, chief economist of the firm, said in the report.

Federal Reserve Chairman Ben S. Bernanke said in a November 16 speech that “the fallout” for banks from commercial real estate could slow the nation’s economic recovery.

Defaults on bank-owned commercial property mortgages posted the biggest quarterly jump from the previous quarter in six years of FDIC data analyzed by Real Estate Econometrics.