Home

Finance News Bread Crumb

Commercial Real Estate Loans Show Signs Of Stress

Biphoo

11 Sep 2017

382 Views

Commercial real estate loans show signs of stress

The commercial real estate market has benefited from eight years of expansion since the financial crisis, but there's reason to believe that this run could be coming to an end.

Data from Trepp, a company that tracks data on the performance of securitized mortgages, shows that the delinquency rate on commercial real estate loans is on the rise.

In July 2016, Trepp estimated that 4.76% of securitized commercial real estate loans were 30 days or more past due on payments. Fast forward to today, and that number has climbed to 5.49%. All told, the delinquency rate on commercial real estate loans has increased in eight out of the past 11 months.

One explanation is that 2016 and 2017 were pivotal years for financial crisis-era loans to refinance. Ten-year loans made in the free-wheeling days on the eve of the crisis -- in 2006 and 2007 -- are now coming due, and some borrowers are struggling to pay them off.

Another explanation is that cyclicality is just an inherent part of commercial real estate. Every decade or two, the market corrects, as it did in the early 1990s and again in the 2008 crisis.

It remains to be seen if a correction is looming right now, but the data certainly seems to suggest that it's a distinct possibility.

The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.

Offer from the Motley Fool: Offer from The Motley Fool: The 10 best stocks to buy now

Motley Fool co-founders Tom and David Gardner have spent more than a decade beating the market. In fact, the newsletter they run, Motley Fool Stock Advisor, has tripled the S&P 500!*

Biphoo

11 Sep 2017

382 Views