Commercial Real Estate Shows Declines - Moody's

by: Roy Mehta

Commercial real estate has started to decline in the face of the credit crunch, according to a report to be released Monday by Moody's investor service. The report said commercial properties decreased 1.2% in September from the month before. Commercial real estate has nearly doubled over the last seven years, but now because lenders have become more hesitant to get involved with anything that has to do with real estate, the commercial market might have seen a top. The default rate for commercial mortgage-backed securities is about 0.4%, extremely tame compared to the current 20% rate for subprime home loans, but Tad Philipp, a Moody's managing director, said he would not be surprised if the commercial default rate doubles or triples. However, the historical average is about 1%, so even if this occurred, it would not be too "alarming." Still, Mr. Philipp does see "more downs than ups" in the near-term. A slight decline in values could create problems for owners who want to refinance their mortgages, especially those who have been only paying interest on their debt thus far. Such loans have been more popular.

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