President and chief economist at REEcon, Chandan also predictsthat default rates for commercial real estate loans will continuerising over the next few years, reaching 4.7% in 2010 and finallyarriving at a peak of 4.8% in 2011. From there, the default rate isprojected to decline to 4.2% over the course of 2012.

In a release, REEcon says key factors driving the projectedincreases include constraints on sources for credit to refinancematuring mortgages and in support of new sale transactions; furthertightening of credit standards by lenders that remain active in thecommercial real estate sector; declining commercial real estateproperty values and finally a deterioration in property income andescrow balances available to support principal interest obligationsduring the terms of loans.

Citing data from the FDIC's Quarterly Banking Profile for Q3'08, REEcon says that of the $1.04 trillion in non-farmnon-residential loans held by FDIC-insured institutions in thethird quarter, around $14.2 billion was in default. Of that, justover 90% was in non-accrual status and less than 10% was 90 days ormore past due.

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