Are Commercial Mortgages Suffering Too?

I met with an old friend yesterday, who also happens to be a commercial real estate agent. He cried (not literally) that the commercial real estate market was feeling the ill effects of the economy too, so it got me to thinking, how are commercial mortgages fairing in this economy? Are commercial mortgage borrowers in the same dire straights as residential borrowers. Are foreclosures on commercial properties the same, lower or higher than residential properties?

According to Deutsche Bank, the increase in the unemployment rate and the increase of business failures has caused the number of defaults on commercial mortgages to rise. In fact, in the second quarter of 2009 the delinquency rate on commercial mortgages almost hit 3 percent and totaled $750 billion in delinquent debt.

To add insult to injury, the tanking of the housing market also led to a loss of mortgage brokers, real estate agency offices and a multitude of other real estate professionals. The unemployment and closures of real estate businesses also caused the commercial spaces once filled with these businesses to empty out.

In total, this has left $3.5 trillion in commercial loans with more than $2 trillion in commercial mortgages maturing between now and 2013. The short answer is that it looks pretty grim for the commercial mortgage industry, so even as the residential market seems to be heading toward a recovery, there is a lag in the commercial industry that means it'll take longer for this market to catch up.