CMBS Delinquencies Climb On Larger Loan Defaults

Defaults on larger loans were again chiefly responsible for another increase in commercial mortgage-backed securities (CMBS) loan delinquencies to 0.88%, according to the latest U.S. CMBS loan delinquency index from Fitch Ratings.

The December climb was due in large part to two loans with outstanding principal balances greater than $100 million, following a November reading that featured two defaults in excess of $70 million. Fitch expects that additional delinquencies on larger loans will continue to drive the index higher in 2009.

‘What began as weakness in the performance of smaller properties located in tertiary markets now includes larger collateral in secondary and primary markets,’ says Managing Director and U.S. CMBS Group Head Susan Merrick. ‘Highly levered loans on transitional assets that were originated at the height of the market are proving particularly susceptible to performance default, as the deepening recession continues to make stabilization according to schedule increasingly unlikely.’

The loan delinquency index currently includes 20 loans with a balance of $25 million or greater, six of which became newly delinquent in December. Excluding small-balance loans, the average loan size of delinquencies within the Fitch-rated universe now stands at $8.2 million. This compares to an average loan size of $6.4 million for the same subset in December 2007.

The December delinquencies included a $125.2 million loan secured by a retail property located in Corona, Calif., and a $104 million pari passu note backed by a portfolio of two hotel properties located in Tucson, Ariz., and Hilton Head, S.C. In each case, the respective loan sponsor was experienced with the property type, but cited economic hardship due to market deterioration as the cause of inability to meet debt service obligations. Both loans were securitized in early 2008.

SOURCE: Fitch Ratings


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