The level of outstanding commercial and multifamily mortgage debt grew to $3.5 trillion in the fourth quarter of 2008, up 0.7 percent from the previous quarter, the Mortgage Bankers Association reported last week. The total was an increase of $166 billion, or 5 percent, from the end of 2007.

Travis Nelson of Nevada Title Co. said the number of commercial defaults started climbing last year and has continued to climb through the first quarter. He counted 34 notices of default in the first half of March, compared with 28 in the first half of February. Defaults are outnumbering commercial sale transactions roughly 2-to-1, he said.

Nelson also sees the mix of property types changing from vacant land, which produces no revenue, to shopping centers, professional business offices, restaurants and cocktail lounges.

With the credit crunch and declining property values, it's getting increasingly difficult to refinance commercial loans, he said. That's why a lot of vacant land owners have gone into default.

Commercial mortgage defaults in March included $27.6 million from Keybank National for land held by Great Mall Las Vegas and three separate loans totaling $67 million, also from Keybank National, for a shopping center on Grand Canyon Drive owned by Nevso LLC.

With consumer spending in a tailspin, retailers such as Mervyn's and Linens 'n Things have gone out of business. The vacancy rate for retail space in Las Vegas rose to 7.4 percent at the end of 2008, up from 6.6 percent in the third quarter and up from 4 percent in the fourth quarter of 2007, reports Applied Analysis, a Las Vegas business advisory firm. The highest vacancy, 10 percent, was found in neighborhood shopping centers.

Multifamily housing development declined sharply after the meltdown in the credit markets and has fallen further as the economic recession and job losses intensify.

Outstanding multifamily mortgage debt grew to $900 billion in the fourth quarter, an increase of $5.4 billion, or 0.6 percent, from the previous quarter, the Mortgage Bankers Association reports.

Kyle Nagy of CommCap Advisors in Las Vegas said defaults on commercial mortgage-backed securities have doubled in the past 12 months to 1.6 percent. He expects the number to double again in the next nine months as maturity defaults and vacancies rise.

"We are at the beginning with much more to come by the end of summer," Nagy said. "I see this wave of foreclosures coming based on the calls I get. When borrowers get in trouble, they call me and ask for options based on their loan documents. 'Kyle, I'm barely even. I've got a nonrecourse loan. What do I do?' I'm fielding these calls. I know they're coming."

Although there have been some positive signs in the economy recently, the 19-month credit freeze is not thawing, he said. Based on current leasing activity and credit conditions, Nagy thinks commercial real estate will continue to be weak into 2010.

Not only are vacancies high, but tenants are asking for lower rental rates because they know concessions are being offered across the street, Nagy said. Even if a shopping center looks occupied, tenants may be paying half the rent they were a year ago.

Commercial banks continue to hold the largest share of commercial and multifamily mortgages at $1.55 trillion, or 44 percent of the total, the Mortgage Bankers Association reported.

"Counter to what many expected, investors increased their holdings of commercial and multifamily mortgages during the fourth quarter," said Jamie Woodwell, the association's vice president of commercial real estate research.

Many loans reported by commercial banks are actually "commercial and industrial" loans in which commercial property has been pledged as collateral, he said.

Banks, thrifts, Fannie Mae, Freddie Mac, life insurance companies and other lenders extended additional credit to the market during the quarter, lending more in new commercial and multifamily mortgages than they saw paid off or paid down on existing loans, Woodwell said.

Contact reporter Hubble Smith at hsmith@reviewjournal.com or 702-383-0491.