Want to know where the next real estate bubble will burst? Keep an eye on commercial real estate:

Delinquencies and Foreclosures - Between April and August ‘09, the value of commercial loans placed in ‘special servicing’ doubled to $50 billion, according to Trepp, a leading provider of CMBS and commercial mortgage information.

Trepp LLC, is a data and software firm servicing the global CMBS, CRE CDO, and commercial mortgage finance industries. Here is how delinquencies of CMBS (Commercial Mortgage Backed Securities) are reporting according to the October monthly Treppwire CMBS Delinquency Report, loan delinquencies continued to climb in October.

“The lodging sector experienced the largest jump from 6.72 percent last month to 8.67, over ten times the delinquency rate at the end of October last year.”

“Five states now have an overall CMBS delinquency rate of over 10 percent (NC, MT, MI, AZ and FL). Among the largest MSAs for delinquencies are: Tallahassee (27%), Fort Myers (23%), Tucson (18%), Las Vegas (16%), Detroit (12%) and Riverside (11%). Despite weak fundamentals however, CMBS bond spreads rallied for most of the month.”

Specialty Loan Services – The title that describes firms specializing in the collection and foreclose process of loan assets that are delinquent or in distress, such as FCI, LNR Property and SLS. Many firms in this arena are experiencing increasing surges in business.

Major Projects – when rents and property values fall, hotels, shopping malls, apartments and other big projects become more likely to default on their mortgages.

In recent years loans on several of these large projects have be broken up and incorporated into billions of commercial mortgage-backed securities and if they go sour will have wide impact in the investment markets.

Small, Medium-sized and Regional Banks - SunTrust Robinson Humphrey recently reported that some of these institutions report having a high proportion of non-current construction loans. Many projects are standing finished but empty or in various stages of completion. It will take months into a recovery for these projects to be absorbed into the market.

The commercial real estate is in a tenuous situation, keep an eye on it.