That was my immediate reaction when I came across this piece over the weekend. Previously I was pooh-poohing talk of 2 and even 3% delinquencies on the grounds that they were still crazy low. But once you get over 5% then you start a-thinking a little more.
The numbers by sector were about what I expected with one exception:
The multifamily sector accounted for 26% of the $37.9 billion delinquent unpaid balance for CMBS in November, followed closely by retail (25%), office (16%), and hotel (15%). Conversely, the industrial market accounted for less than 2% of the delinquent unpaid balance for CMBS during the same period. Health care properties represented less than 1%.Hotel at 15%? Does that include the ESA loan? If not, I agree with the story that you are going to see more trouble there before it is all said and done. But are we going to hit 7 or even 8% in 2010? The hotel sector alone might be able to push that number, but we'll all just have to see. (Boy, do I wish I owned a working crystal ball sometimes.)
From the legal perspective: this means more and more working out. And I don't mean the treadmill, although I am going to take a spin in that as soon as I finish this post. We lawyers will have to spend some long hours negotiating and documenting deals. And that has to be done carefully -- no more of this "cowboy law" stuff we saw going on. I am starting to see litigation ramping up over some deals where you have to wonder, if you know what I mean. This is a time to dot i's and cross t's like you never have before.