Although to this point the housing slump has not affected the commercial mortgage market, many lenders are getting nervous and investors are pulling back. This is being blamed on numerous factors, including the continuing economic crunch and fears that loan rates will not come down far enough to allow commercial mortgage holders the capability of keeping up on their payments.”The anticipated increase in commercial mortgage losses has caused the credit markets to significantly overestimate the potential for future default rates,” said Jon Southard, director of debt management and valuation for CBRE Torto Wheaton Research. “The reality is that commercial real estate markets remain sound, with low vacancy levels and construction moderate in all but a few markets. Despite the slowdown in the economy, all major property types are expected to have positive-if lower-rental growth rates this year, and buildings’ net operating income should continue to improve.” “Delinquencies in commercial mortgages continued to be very low at approximately 40 basis points. Our research expectations that they would not exceed 70 in a difficult environment,” Erin Callan, CFO of Lehman Brothers Holdings Inc., told analysts this week. “However I will note that our valuations reflect how the market is pricing these positions, not the fundamentals of the asset class. Regardless of our view on their intrinsic value, since the end of the quarter we’ve been actively reducing the balance sheet exposure in the commercial asset class because we’ve seen a little bit more liquidity.”
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