Fitch: CMBS Loan Delinquency Rose Again

Defaults on three 2007 vintage loans ranging in size from $130 million to $225 million led to a 27 basis point (bp) increase in January. U.S. commercial mortgage-backed securities (CMBS) loan delinquencies rose to 1.15%, according to the latest delinquency results from Fitch Ratings.

‘High-profile loans secured by larger properties, which were often not stabilized at transaction issuance, have begun to default,’ says Susan Merrick, managing director and head of the U.S. CMBS group at Fitch Ratings.

Fitch continues to expect that performance defaults on larger loans will push up the loan delinquency index in coming months, to approximately 3% by year-end 2009. With pools consisting of many larger assets, the 2006 and 2007 vintages are likely to be the largest contributors to delinquencies.

Among the January delinquencies was a $225 million loan secured by the Riverton Apartments, the $175 million Resorts Atlantic City loan and the $130.5 million B2 multifamily portfolio loan. The larger two loans defaulted as economic deterioration hampered each respective borrower's plan to reposition the property to earn a higher budgeted cashflow, while the smaller loan was stabilized at issuance, but it suffered due to tenants falling behind on rental payments.

‘Though capital market illiquidity remains problematic, the recent defaults underscore a shift in which the deepening recession has impacted real estate fundamentals such that term risk outweighs balloon risk as an immediate concern,’ notes Merrick.

SOURCE: Fitch Ratings


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