Commercial Mortgage Delinquencies Rise in Hard-Hit States

Defaults on hotel and retail loans drive up delinquency rates for commercial real estate loans, with strong concentrations in the parts of the US hit hardest by the housing crisis.

Fitch Ratings cited five defaulted loans of at least $100m each as contributing factors to a record $2.2bn net increase in delinquencies in June. According to its report, released Monday, delinquencies are up 48 bps to 2.55%.

Moody’s Investor Services put the delinquency increase in its July 10 report at 2.67%.

According to Moody’s state-by-state breakdown, Michigan’s 7.8% delinquency rate was the greatest of any state in the country. Nevada was second, (6.93%) followed by Rhode Island, (6.65%) Arizona (6.28%) and Tennessee (5.74%).

However, the report also said delinquency rates in California and New York, which represent 14.95% and 12.11% of the commercial real estate market, respectively, are below the national average. California’s delinquency rate is 1.94% and New York’s is 1.16%.

June’s largest commercial default, the reports said, was the Woodbridge Center in Woodbridge, N.J., a loan worth more than $207m. It, along with a $164.5m defaulted loan on the Jordan Creek Town Center in West Des Moines, Iowa, are sponsored by the Chicago-based General Growth Properties (GGP), which is currently under bankruptcy protection as the retail developer reorganizes.

GGP, the country’s second-largest mall owner, is negotiating $27bn in debt with its creditors.

Fitch reported 13 hotel loans worth a combined $596m defaulted in June alone. More than two-thirds of that value is in three loans for hotels in Phoenix, Las Vegas and New York City.

Delinquency rates for multifamily properties were more than 4.5% in both reports, and the highest of the commercial sectors. But Moody’s 4.58% rate came in only two bps higher than the multifamily delinquency rate in June. Multifamily delinquency rates decreased in the western and southern regions of the country, but a 61-bps increase in the Midwest kept the national average up.

Write to Austin Kilgore.