NEW YORK - December 3, 2009 - Recent reports from a couple of research firms confirm that defaults on U.S. commercial property loans are surging, standing at the worst level in 16 years. The reports also confirm it is going to get much worse going forward into 2010 and 2011, also as expected.

A report from Real Estate Econometrics states that the percentage of commercial real estate loans in default across the nation has risen to 3.4% in the third quarter, rising over half a percentage point from the second quarter.

Real Estate Econometrics measured commercial real estate data based on mortgages held by retail, industrial, hotel and office properties. The 3.4% default rate is already the highest since 1993, where it stood at a 4.1% default rate.

As far as what determined the default rate percentage, it was defined by commercial loans that were in default by 90 days or more, or as loans that aren’t expected to ever be paid back in full.

On multifamily mortgages, the default rate has exploded, now more than double what it was in 2008. Apartment buildings also continue to increase at a strong default rate, as just from the second quarter they’ve risen from 3.14% to 3.58%. 

Lead economist for Real Estate Econometrics, Sam Chandan, said the idea that all of this is a regional bank problem is a myth, as each bank and how it handled generating the loans in the first place will determine the impact on their bottom line. “The conditions of each bank need to be evaluated on their own merit,” said Chandan.

In other words, those who managed their risk throughout the loan process and operated from a conservative viewpoint will hold up much stronger than banks that pretty much threw caution out the window on many of their commercial loans.