Fitch: GGP Loan Corrections Stem U.S. CMBS Delinquency Climb For Now

Though U.S. commercial mortgage-backed securities (CMBS) delinquencies held steady at 3.04% this past month, a closer look reveals a de facto increase of 18 basis points after adjusting for standardization in servicer reporting, according to the latest Loan Delinquency Index results from Fitch Ratings. The adjustment consisted of the loan status reclassification of six large loans sponsored by General Growth Properties (GGP) totaling $819 million.

‘While the delinquency rate remained unchanged in August, it does not reflect a sign of broader recovery in commercial real estate fundamentals,’ says Fitch's managing director and U.S. CMBS group head, Susan Merrick. "Several large imminent defaults in the pipeline, including $668 million in hotel loans tied to the gaming industry and three additional loans above $100 million that are 30 days delinquent, suggest that performance deterioration will continue."

The now-current GGP concentration corresponds to loans whose special purpose entity borrowers filed for bankruptcy as part of the parent company's reorganization that began in April. With cash collateral orders now in place, several servicers in August reclassified the affected loans as current due to their adherence to the court-imposed modified loan terms.

In addition to the GGP loan corrections, three Red Roof Inn portfolio notes totaling $294 million reverted to 30-day delinquency (from 60 days), removing them from August's index.

The most significant of the $1.7 billion of new defaults in August, Fitch says, was the $195.1 million Babcock and Brown FX 3 Portfolio loan, secured by 14 cross-collateralized and cross-defaulted multifamily properties located in several markets across six states.

The Babcock and Brown portfolio loan corresponds to the CSMC 2006-C4 transaction, which was recently downgraded by Fitch in anticipation of the default. The loan now stands as the largest 60-day delinquency in the Fitch-rated universe and, along with 50 additional newly delinquent multifamily loans totaling $220 million, helped to push the delinquency rate for the property type to 5.44%.

Retail loans continued to lead the indexm with a total dollar balance of $4.3 billion in delinquent loans, compared to $4.8 billion the month prior. The delinquency volume for multifamily loans rose to $3.7 billion, a net increase of 7.3%, while office loans rose to $2.5 billion, representing a 9.3% increase over the previous month.

Loans collateralized by hotel properties registered a 12.5% drop for the month, to end at $1.9 billion in delinquencies, while industrial loans ended the month with $587 million in delinquencies. When ranked by delinquencies within their individual property types, multifamily again led at 5.44%, followed by hotel at 3.79%, retail at 3.22%, industrial at 2.40% and office at 1.7%.

SOURCE: Fitch Ratings


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