Although the state of commercial properties continues to show serious stress, according to Fitch Ratings, the rate of default is beginning to slow despite reaching a record 7.48% delinquency rate. The report goes on to provide a break-down of delinquencies by type including:
Hotels: 18.42%
Multi-family: 13.60%
Retail: 5.83%
Industrial: 4.6%
Office: 3.87%
The Good News
In addition to slowing default rates, areas outside of the Sun Belt and Rust Belt are showing signs of stability. The rate of credit worsening is also slowing as the level of liquidity loss as well as ability of mortgage holders to pay-off or close their loans demonstrated some positive signs.
The Bad News
Although the number of defaults is beginning to slow, experts believe the situation will continue into the foreseeable future as credit and lending standards continue to tighten in the commercial arena. Unlike residential real estate which is typically financed using 15 to 30 year loans, commercial loans frequently use short durations from five to ten years making them especially prone to a lack of liquidity associated with tighter lending standards. Net lending activity is down over 7.5 percent from the peak in 2008 with commercial giants like Wells Fargo projecting continued losses to peak by the end of the 2010.
The Bottom Line
What does this mean for prospective commercial short sale investors? Plain and simple...opportunity. Commercial short sales may be just the ticket to move your portfolio from a part-time investment to full-time career or long term asset. Whether you own a business of your own or simply desire a method to maximize profits, commercial short sales provide many of the same benefits enjoyed by those that work in residential real estate concerns with meaningful returns. Tune in to one of our webinars or sing-up to receive more information about investing in commercial short sale opportunities.
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See you at the top!
Martin Crawford
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