Commercial Mortgages Recovering Faster Than Residential Home Loans

by 09 Nov 2012

The performance of commercial mortgage debt on a national level does not often make news headlines, but a recent report by Bloomberg Businessweek indicates that the rate of delinquency on commercial property loans has greatly improved since April 2010. 

The positive report was released by Citigroup, and it considers delinquent debt owed to hotels, shopping malls and office towers. In October, the overall amount of delinquent debt on those properties stood at $53 billion. That’s $1.5 billion less compared to the previous month. The rate of payments in delinquency status by more than 30 days is now less than 10 percent, another improved figure that has not been observed since 2010.

QE3 Seems to be Working

Business analysts are crediting the efforts of the Federal Reserve Board to stimulate the economy with the improved outlook for commercial mortgage payments. One of the focus points of the third round of quantitative easing (QE3) announced by the Fed earlier this year is to keep commercial lending rates at their level. As a result of this effort, investors are looking at debt securities back by commercial mortgages as attractive financial instruments to profit from. 

QE3 is the only bright spot for the commercial mortgage industry at this time. Economic growth for the commercial mortgage industry remains languid, and the occupancy rates are still a far cry from the levels seen before the collapse of the credit and financial markets in 2008. Citigroup analysts hope that the current improvement in terms of delinquency may finally bring a much-needed sense of stability to the sector.

Healthy Levels of Refinance Activity Observed

Increased sales of commercial mortgage debt securities are stirring a surge in refinances. Borrowing costs are at very low levels thanks to QE3, and many commercial property owners are now able to refinance for better rates and terms.

Citigroup analysts recommend that commercial property owners should take advantage of refinancing opportunities now that commercial mortgage bonds are performing better than Treasury securities. As long as investors are interested in debt instruments secured by commercial mortgages, the options for refinancing will remain favorable.



Is TILA-RESPA a good or bad thing long term?