Spring Conference Review - reomac

By Bruce
Juenger
EARLY BREAKOUT SESSION 3:
Commercial Properties + Mortgage Default =
Are You Prepared?
Moderator:
Panel:
Mathew Mandell, REO Property Specialists
Brandy White Elk, Innovative Real Estate Strategies
Don Rigsbee, JP Morgan Chase
John Kohut, KCG Kohut Capital Group
This session focused on the seldom
mentioned, but growing potential,
of commercial loan defaults and the
consequential rise of financially distressed
commercial properties that will need
to be resolved, and the opportunities
for individuals to become experts on
what could be a highly active niche of
the default industry. Most of the recent
attention of the public, media and default
servicing professionals has been focused
on residential foreclosures. However, there
is an immense level of commercial loan
defaults lurking as a very real possibility
in the near future. This will have profound
repercussions on the real estate market and
those who work in the industry.
The session was opened by the moderator
Mathew Mandell of REO Property
Specialists who presented a PowerPoint
that demonstrated the growing issue of
commercial loan defaults. Mr. Mandell
remarked that this topic was recently
reported by the Wall Street Journal in a
March 26, 2009 article titled: “Commercial
Property Faces Crisis.”
In the presentation it was noted that while
less than 3% of the default industry is
in commercial, the commercial default
services niche is still in its infancy. In the
recession of the early 1990’s there was
a failure rate of approximately 1.8% in
commercial loans. In the next five years,
the number of commercial loan defaults is
expected to soar to levels that will dwarf
those. In the last six months alone the 30
– 60 day delinquency rate has soared 300-
400%. The aggregate delinquency rate is
expected to reach 3.5% by the end of 2009,
and as high as 5-6% by late 2010.
The soaring commercial delinquencies
are due to several factors. Of course
the continuing economic recession is
decreasing demand for retail and industrial
real estate deflating rents and property
values as much as 45%. There are as many
as 700 banks that are in danger of failing
over the next three years. Adding to the
threat is the high number and the large face
value of high-risk 5 year loans that are due
in 2010-2012.
This is creating a climate for a “perfect
storm” of defaults in commercial real estate,
one that will present major crises and
opportunities for the experts in this field.
The next panelist was Don Rigsbee, Special
Assets Division Manager for J P Morgan
continued on page 42
REOMAC ® update tm Ma y / Jun e 2009 41