A $19 billion wave of five-year commercial mortgages originatedat the height of the property-market bubble starts maturing in lessthan a month, sparking concern that delinquencies willaccelerate.

About 43 percent of the $44 billion in loans packaged into bondsthat come due next year were arranged in 2007 before propertyvalues tumbled 42 percent, according to Bank of America Corp. Thelargest deal ever, a $7.3 billion issue by Goldman Sachs Group Inc.and Royal Bank of Scotland Group Plc, has $586 million of loansmaturing in 2012, Bloomberg data show.

Owners of everything from strip malls to Manhattan skyscrapersmay find it harder to refinance after Europe's fiscal crisis sentrelative yields on commercial-mortgage securities to the highestlevel since February 2010, roiled credit markets and forced apullback in lending. Late payments, which declined to 9 percentfrom a record 9.1 percent in October, are likely to rise in partbecause of the 2007 class of maturing debt, according to BarclaysCapital.

“These loans were done at the peak of the market,” said JuliaTcherkassova, a commercial-mortgage debt analyst at Barclays in NewYork. “They will have trouble refinancing today.”

Loans packaged and sold as bonds typically have terms of five or10 years. Borrowers with five-year mortgages are finding it “muchtougher” to repay, according to a Nov. 10 report from Wells FargoSecurities LLC. About 39.4 percent of five-year loans packaged intobonds were able to refinance in 2011 compared with 80 percent of10-year commercial mortgages, the report said.

The extra yield investors demand to own top-rankedcommercial-mortgage bonds rather than Treasuries has risen to 267basis points from this year's low of 178 basis points on April 26,according to a Barclays index. While the spread has narrowed from323 on Oct 4, the widest since February 2010, increased volatilityhas curbed new lending, Tcherkassova said.

Elsewhere in credit markets, U.S. consumer borrowing rose inOctober to the highest in two years. Pacific Investment ManagementCo. is waiting for European central bankers to take morecoordinated action to support markets before buying risky assets.Aegon NV is seeking as much as 2.2 billion euros ($2.95 billion) ofloans to refinance debt maturing next year.

Bonds of Hewlett-Packard Co., the world's largest maker ofpersonal computers, were the most actively traded U.S. corporatesecurities by dealers yesterday, the day after its $3 billionoffering, with 321 trades of $1 million or more, according toTrace, the bond-price reporting system of the Financial IndustryRegulatory Authority.

Since the Palo Alto, California-based company's offering, its$1.5 billion of 4.65 percent 10-year notes rose 2.1 cents to 101.8cents on the dollar, Trace data show.

Top-ranked commercial property debt has returned 5.4 percentthis year after gaining 11.6 percent in 2010, Bank of AmericaMerrill Lynch index data show. U.S. company bonds returned 6.6percent in 2011 and 9.5 percent the prior year.

Wall Street banks arranged about $27.2 billion in bonds backedby commercial mortgages this year, compared with $11.5 billion in2010, Bloomberg data show.

JPMorgan and Wells Fargo analysts predicted from $45 billion to$50 billion in 2011 sales.

New Loans Slow

A record $232 billion was issued in 2007 when top-rankedcommercial mortgage bonds paid a spread as narrow as 60 basispoints, Bank of America Merrill Lynch index data show.

Lenders slowed the pace of writing new loans this year asvolatile prices made it hard to gauge how much cash they wouldrecoup in future bond sales, Barclays said.

Originations have increased “moderately,” S&P said in a Nov.30 research note. The ratings company said it expected $5 billionin sales to be completed through the first quarter and $35 billionfor all of 2012.

Forecasts range from Wells Fargo predicting $25 billion inissuance to UBS AG forecasting as much as $45 billion.

The surge in 2007 loans coming due won't necessarily lead tohigher defaults as loan servicers choose to extend the debt ratherthan foreclose on borrowers, according to Alan Todd, a NewYork-based analyst at Bank of America.

“There is going to be more talk of kicking the can down theroad, but that is not necessarily a bad thing,” Todd said in atelephone interview. “Expectations in 2008 and 2009 were squarelyfocused on faster disposals and fewer modifications and extensionsthan we have seen.”

About 9.2 percent of the 2007 Goldman Sachs and RBS deal hasbeen transferred to a so-called special servicer, firms that handletroubled loans and negotiate with the borrower on behalf ofbondholders, Bloomberg data show. About 4.8 percent is inforeclosure.

Overall the balance of delinquent loans in the roughly $600billion commercial mortgage bond market peaked at $59 billion inApril, and had fallen to about $55 billion as of November,according to a Dec. 5 report from Wells Fargo analysts led byMarielle Jan de Beur.

While the pace of borrowers falling behind on monthly paymentsmay slow next year, the inability of property owners to refinancecauses “serious concerns” for 2012, the Wells Fargo analysts said.Loans set to mature from the 2005 and 2007 vintages present a “muchbigger challenge,” than previous years, they wrote.

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