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WASHINGTON DC-In the third quarter the commercial real estate market hit the lowest level of loan delinquency costs in the past 35 years. The previous low occurred in 1982.According to the November Giliberto-Levy Monitor, an industry survey, the last eight years have seen a steady and unprecedented decline in delinquency costs.

“It’s probably best to say we have been in an eight to nine year expansion of the economy,” says John B. Levy, the study’s co-author. “The economy has been on the mend since last great depression for real estate [in the late 1980s]. Costs have been coming down. We are at an incredibly new low level of nine basis points, basically down 96% from the peak.”

“We had [in the 1980s] an incredible expansion of new buildings,” Levy reports. “In fact, new buildings were built without a lot of funds or tenants. When the economy slowed down, we had all these buildings built on speculation. A lot went back to lenders because the developers couldn’t pay them. We had default and delinquent loans. We’ve been kind of working off that since the peak in 1993. Now we’re in a level that is about as good as it gets.”

Levy attributes some of the lows to conservative lending practices. Multifamily delinquencies remain pretty steady at three basis points while offices and retail fluctuates a bit. Although Levy says he’s hesitant to predict the future.

“How long can this low rate go?” he asks. “To the extent the economy starts to slow down, we are in a fairly conservative lending environment. That has kept a lid on new buildings. We might pick up in retail delinquencies for example. The retailer seems to be having a rougher time. We haven’t seen that, but it is possible. The real question is how slow do we slow down? How soft is the landing? Commercial mortgages are a trillion dollar number. It is a huge sector of the economy. It will be interesting to see what it’s like this time next year.”

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