Commercial Real Estate CDO Delinquencies Stay Flat

Late payments on U.S. commercial real estate loan collateralized debt obligations (CREL CDOs) remained flat in April at 13.2%, according to the latest index results from Fitch Ratings.

Only one new delinquency was reported in the month. This newly matured balloon B-note is secured by a full service hotel located in Los Cabos, Mexico, the group says. Also, two assets included in last month's index are no longer considered delinquent. These assets include a mezzanine loan backed by a hotel portfolio disposed of at a nearly full loss, and a rated security that is no longer considered credit impaired.

Asset managers have steadily reduced the overall balance of delinquent assets through resolutions over the past year, which has helped keep CREL CDO delinquencies largely flat.

In April, asset managers reported approximately $70 million in realized principal losses from the disposal of three assets. The majority of the reported loss was related to the above mentioned mezzanine loan interest disposal. The loan, which was backed by a considerably over-leveraged portfolio of five hotels located in five different states, was sold at a significantly discounted sale price. Final recoveries after closing costs are expected to be less than 1.5% of the loan amount. Fitch's modeling anticipated this substantial loss in a recent review of the related transaction.

While the dollar balance of delinquent hotel loans has declined by 15% over the past year, the most significant decline over the same period was among delinquent multifamily properties, which decreased by 55%. Only the delinquent non-cash-flowing property types – construction, land, and condominium conversions – did not decline in the last year, reflecting the continued difficulty in resolving those loans.

A total of 28 CREL CDOs rated by Fitch Ratings reported delinquencies ranging from 0.3% to 74.6% last month, Fitch notes.


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