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Real estate delinquencies rise, commercial investors remain optimistic

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Foresight Analytics, a division of commercial analytics firm Trepp, expects residential and commercial real estate delinquencies to increase slightly in the third quarter of 2010. Despite this sign of the instability in the marketplace, many investors are optimistic about commercial prospects in 2011. Foresight Analytics released its third quarter predictions in lieu of the Federal Deposit Insurance Corp. releasing its official numbers later this month. Foresight Analytics collects and evaluates data from third quarter earning results from banks nationwide. The firm expects residential mortgage delinquencies to increase 0.1% from the second quarter to 13.3%, commercial delinquencies to increase 0.2% to 5.6% and construction loans to increase 0.3% to 19.5%. Foresight only sees a drop in delinquencies in the commercial and industrial loan sector, down 0.3% to 3.4% "Our detailed research through earnings reports and call report filings from smaller banks tells us that 3Q delinquencies will increase, following a second quarter drop, amid renewed softness in both commercial and residential real estate prices,” commented Matt Anderson, managing director of Foresight Analytics. "These delinquency rates are still below the 1Q 2010 peak rates, and are likely to be the apex in delinquencies barring a return to recession." Foresight Analytics expects the nonaccrual rate for residential, commercial and construction loans to worsen and even expects the commercial nonaccrual rate to hit a record peak at 4%. Despite these predictions of the market's instability, many investors maintain optimism about prospects for 2011. According to a survey of emerging real estate trends by the Urban Land Institute, participants in the real estate markets currently see a gulf between buyers and sellers, but expect "that the bid-ask spread will begin to close in 2011." This means that there is a trend toward a general consensus on market price. Investors recently showed signs of returning to the CMBS market as conduit funding increased 940% in the Mortgage Bankers Association Third Quarter Origination Survey. "Investors with cash could have excellent opportunities to seize market bottom plays by recapitalizing cash-starved owners or buying foreclosed assets," said Stephen Blank, senior resident fellow for Real Estate Finance at ULI. Write to Christine Ricciardi.

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