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It was reported a few days ago, August 31, 2009, by Hui-yong Yu (Bloomberg) that:

"The default rate on commercial mortgages held by U.S. banks more than doubled in the second quarter from a year earlier amid falling rents and occupancies for malls, office buildings and warehouses."

Hui-yong Yu also noted that:

"Commercial defaults will rise to 4.1 percent by year’s end, a rate last seen in 1993, according to Chandan’s forecast [Real Estate Econometrics President and Chief Economist is Sam Chandan]. Overdue commercial property loans reached 4.6 percent in 1992 during the savings and loan crisis, when the U.S. created the Resolution Trust Corp. to sell off real estate and non- performing mortgages held by insolvent lenders."

Regarding apartment defaults:

"U.S. apartment vacancies may rise to 7.8 percent by the end of this year and break the record 8 percent in 2010 as unemployment worsens and the supply of new apartments increases, according to New York-based Reis. The default rate on bank-held mortgages for apartment buildings climbed to 3.13 percent in the second quarter from 1.20 percent a year earlier, according to Real Estate Econometrics."

This is devastating news and certainly doesn't sound like a prelude to the "2010 recovery" that some analysts have predicted (http://money.cnn.com/2009/03/25/news/economy/ucla_forecast/index.htm?postversion=2009032506).

Hopefully, the public won't fall for this recovery-rhetoric and, instead, prepare themselves accordingly.

The worst is yet to come.

- Ed Smith