Nearly 20% of Construction Debt is Delinquent

There are a number of data providers who put out estimates for commercial delinquencies, so the numbers are not entirely consistent in news reports. Nevertheless, according to a Globe St. article and a local provider of data, 4.7% of commercial loans are past the 60-day delinquent mark, and increasing.

The total delinquency rate for commercial mortgages expanded 60 basis points in the third quarter to 4.7%, according to an early estimate by locally based Applied Analysis. While final figures for the third quarter are not due out until late November, the real estate market analysis and forecasting specialist uses earnings reports and call report filings from many smaller banks to produce its quarterly estimates.

What’s more is that we are nearing near 20% delinquency in construction loans. This is important because much of the real distressed opportunities will come in this sector. So investors willing to take on some development risk will likely reap the largest rewards when we come out of this slump, while those investors solely focused on quality, performing assets will face the most competition for deals as it all comes down to the availability of debt.

The delinquency rate in construction lending, including both residential and commercial, jumped 190 basis points in the third quarter to 18.2%. The last recession’s peak came in the first quarter of 2001 when construction loan delinquency hit 19.2%, according to AA.

[via Globe St.]

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