An interesting survey revealing how pervasive the debt problems of commercial real estate owners has become:
For those of you that aren’t up to speed on this, rates on commercial real estate debt have risen even though rates on residential mortgages have fallen in the past 2 years. Reasons include the interference in the residential market by the Federal Reserve and the larger risks of commercial loans needing to be mitigated by the lenders (if a homeowner defaults, it may be a 300k loss, if a commercial borrower defaults, it could cost the bank $3 million!).
Therefore, rates above 7% are commonplace for commercial borrowers and unlike residential loans, 30 year fixed rates are not happening. A good borrower may get 5-7 years fixed but often borrowers are using variable rate loans because that’s all the bank will give them or fixed rates are too high for the rental income to cover the debt service.
All around, it’s a tough time in commercial property (though it may open opportunities for cash buyers now).