Cleveland Commercial Loan Delinquencies Signal More Declines

[Joanne98]

By Brian Louis

March 9 (Bloomberg) -- Cleveland and Detroit lead the U.S. in commercial mortgage delinquencies, a sign the housing crisis that brought down Wall Street is spreading beyond the residential market.

Office, retail, apartment and industrial properties with mortgage payments 60 days late or more rose to 3.93 percent as of March in the Cleveland area and to 3.75 percent in the Detroit area, according to data compiled by Bloomberg. The North American commercial property delinquency rate is 1.1 percent, according to Standard & Poor’s.

“There is really no part of the country being spared,” said Robert Bach, chief economist at Santa Ana, California-based broker Grubb & Ellis Co. “Cleveland and Detroit are just the first to feel the stress. They’re the canaries in the coal mine.”

The second year of the U.S. recession is reducing demand for commercial real estate after prices hit a record in 2007. The slump in housing and rising unemployment will probably take a toll on retail and office landlords, Bach said.

Loans secured by properties that were written assuming rental growth have been unable to meet targets, leading to increased defaults. The delinquency rate for North American commercial real estate loans in mortgage backed securities may triple in 2009 as loans default, Standard & Poor’s credit analyst Eric Thompson said in a Feb. 17 statement.

Markets at Risk

Once-booming housing markets such as Phoenix and Las Vegas are likely next at risk, said Bach. The Phoenix area had the second-highest percentage of 30-day late commercial real estate loan payments among the largest 26 metro areas in the U.S. as of this month, Bloomberg data show.

The owner of the 40-story Tower at Erieview in downtown Cleveland gave notice it would miss a Nov. 1 debt-service payment on a $44.2 million loan because of capital expenses and declining occupancy, according to a Feb. 9 statement by Standard & Poor’s.

http://www.bloomberg.com/apps/news?pid=20601109&sid=aVyOvEG8AoZw&refer=home