Higher Vacancies & Rising Rates Driving Commercial Real Estate Defaults

A perfect storm of rising borrowing costs, higher vacancies and slower sales is resulting in greater default rates in the $11 trillion commercial real estate sector, according to an article in the Wall Street Journal.

Commercial property sales volumes have already declined by 8.6% to $354.4 billion in the first 9-months of 2016, reported Real Capital Analytics. Furthermore, defaults rose from 4.6% earlier this year to 5.6% in September, representing $390 billion of mortgages that are over 60-days late.

Complicating the situation even more is a slew of 10-year loans that were made in 2006 and 2007 with balloon payment coming due in the next year or two. “I can paint a picture that it could be disastrous, with runaway inflation and high interest rates,” said Charlie Bendit, co-chief executive of Taconic Investment Partners LLC.