Jablonski Featured in Crain’s Cleveland Business

Commercial loan delinquency issue lingers
Lenders write down more of portfolios, file foreclosures to preserve asset values
April 12, 2010

Mark Jablonski is prospecting for bargains.

A former commercial loan officer at a bank and real estate analyst for an accounting firm, Mr. Jablonski now is a developer who hopes to mine treasures from the sour loans and distressed properties banks are unloading as they look to clean up their balance sheets.

“If you were on the sidelines in the boom or have access to capital, you are in the driver’s seat,” said the president of Centermark Development LLC of Cleveland.

Mr. Jablonski has yet to latch on to any deals, though recent figures indicate lenders still have plenty of bad debt and properties to ditch.

According to the latest data from real estate consulting firm Foresight Analytics, commercial real estate loan delinquencies as of Dec. 31 in the Cleveland-Elyria-Mentor metropolitan statistical area stood at 5.7% of total commercial real estate loans outstanding. That number was down from a 6.7% delinquency rate as of last Sept. 30, but was still well above the 3.4% delinquency rate at year-end 2008.

Likewise, in the Akron MSA, the delinquent rate on commercial mortgages had edged down to 4.5% by Dec. 31 from 5.3% as of last Sept. 30. However, the year-end 2009 figure was much worse than the 2.6% delinquency rate at the end of 2008. The Akron MSA covers Summit and Portage counties.

On a nationwide basis, the commercial loan delinquency rate had climbed to 5.1% at the end of 2009 from 4.6% as of Sept. 30 and 2.7% as of Dec. 31, 2008.

The dips in delinquency rates in the fourth quarter in the Cleveland and Akron markets may seem encouraging, said Matthew Anderson, Foresight Analytics managing director. But, as Mr. Anderson noted, “It doesn’t mean the (delinquency) problem has gone away.

“It just means it’s someone else’s problem,” Mr. Anderson said. “It’s still a defaulted mortgage. It’s just on someone else’s balance sheet or has been written down to whatever the bank received for it.” Foresight bases the report on federal regulators’ reports of calls to banks on the status of loans and covers loans more than 90 days past due.

Among the 100 largest metro areas Foresight tracks, the commercial mortgage delinquency rate as of Dec. 31 in Jacksonville, Fla., topped the nation at 8.5% followed by Charlotte, N.C., at 7.4% The Cleveland MSA ranks 27th nationally and Akron’s ranked 63rd in terms of delinquency percentages.

Carl Dyczek, a lawyer at Walter & Haverfield LLP in Cleveland who frequently represents lenders in real estate matters, said banks “had to really write down a lot of loans” for delinquency rates to drop so much so quickly.

At the same time, Mr. Dyczek said, he is seeing the filing of more foreclosures on commercial and residential properties as “banks try to preserve asset values, although there are lots of absolute bottom fishers out there” waiting for troubled properties to become available.

Andrew Randall, the Cleveland-based Ohio president of TriState Capital Bank, said improvement in the commercial lending market only will come with time and a recovery in the economy.

“Delinquency rates are a funny thing,” Mr. Randall said. “A bank might find a loan delinquent because a building has lost value; an appraisal done in 2005 is less than one done in 2009 in the recession. No one expects values to come rocketing back. In our own portfolio, we are seeing stability.” There even are signs of a slight easing in the availability of bank credit. Mr. Randall said his bank recently had a prospective customer come back with a loan offer from a competitor who had been out of the commercial property market.

Likewise, Mr. Dyczek said he recently completed legal work on a new commercial loan a bank was issuing to rehabilitate a building.

“It’s the first new loan I’ve worked on in six months,” he said.

However, Foresight’s Mr. Anderson said even with improved delinquency rates here it is too soon to look for a big resumption in lending, especially with delinquency rates still high and worsening nationwide.

“We won’t see new lending until joblessness goes down and the economy recovers,” Mr. Anderson said.


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