REIS, Inc. (a New York-based real estate analytics firm) has released data suggesting that US based commercial properties at risk of default could triple if rental income from office, retail and apartment buildings drops by even 5 percent.  Here’s a quote from the Bloomberg piece on the report – 

U.S. commercial properties at risk of default could triple if rental income from office, retail and apartment buildings drops by even 5 percent, a likely possibility given the recession, according to research by New York-based real estate analysts at Reis Inc.

Lenders that used optimistic rent estimates to grant mortgages beginning in 2005 stand to lose as much as $23.1 billion, or 7.02 percent, of total unpaid balances if landlords lose 5 percent of net operating income, according to Reis. Analysts examined data on 22,890 properties that together may account for unpaid loans of about $329 billion in 2009, said Victor Calanog, director of research.

Banks are at risk as office vacancies are forecast to rise to 15.6 percent next year from an estimated 14.6 percent at the end of 2008. Lenders who sold commercial mortgage-backed securities to pension funds, investment banks and foreign governments have been hit by more than $1 trillion in losses and asset write-downs connected to bad residential loans.

“A large decline in net operating income isn’t necessary to shift a lot of properties underlying CMBS loans into debt- service coverage ratios that would be worrisome,” Calanog said in an interview.

We agree with most (including Bill at CalculatedRisk) that the greatest risk appears to be in the office and retail sectors; Bill posted the interesting graph below linking office vacancy rate and unemployment today here and went on to discuss the horrid vacancy rates in office real estate in particular, and how things are likely to get much worse in some markets. 

 

From the Marcus and Millichap Multifamily teleconference last week (see the mention of the teleconference from Saturday), current multifamily defaults (graph below) are at near historic lows.  Projected increases in vacancy across the board of 1% during 2009 won’t tip many properties into default status, though some very poorly underwritten complexes (proforma based underwriting during the frenzy) could fail.  (We’re searching for those every day!)

An unforeseen US or global financial catastrophe could of course change the course of things in a matter of days, but right now multifamily assets are not in the same risk tier as office and retail based assets at this point in time. 

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