Fitch: Hotel, Retail Defaults Drive CMBS Delinquencies

ts on five loans of $100 million or more contributed to a record $2.2 billion net increase in U.S. commercial mortgage-backed securities (CMBS) delinquencies in June, pushing late-pays up 48 basis points (bps) to 2.55%, according to the latest U.S. CMBS delinquency index results from Fitch Ratings. The largest defaults included three loans collateralized by hotel properties that defaulted during their term and two nonperforming matured loans backed by regional malls. "Hotel performance has continued its expected sizable decline, with revenue per available room levels down 20 percent to date and cashflows expected to decline by at least 35 percent from peak levels," says Susan Merrick, managing director and U.S. CMBS group head. "With no immediate revival of demand in sight and recent-vintage hotel loans unlikely to meet projected performance levels, loan sponsors are increasingly depleting reserve accounts or are being forced to come out of pocket to service debt shortfalls, each of which are a precursor to potential future default." Last month, 13 hotel loans totaling $596 million defaulted, including the $190 million Pointe South Mountain Resort in Phoenix, the $117 million Loews Lake Las Vegas and the $100 million Dream Hotel in New York. Fitch expects hotel delinquencies to continue to grow, with an additional $608 million of Fitch-rated hotel loans 30 days past due as of June 30. Included in this group were three notes totaling $293.8 million that correspond to portfolios of Red Roof Inn properties, which Fitch expects will move into the delinquency index next month. The two largest retail defaults in June, the $207.2 million Woodbridge Center loan and $164.5 million Jordan Creek loan, are sponsored by General Growth Properties (GGP). Though performance at each of the properties was strong throughout the term, each borrower's failure to repay the balloon amount upon maturity resulted in their respective defaults, which will not be resolved until further details emerge from the bankruptcy ruling, Fitch notes. According to the cash collateral agreement approved in bankruptcy court, GGP is required to remit interest payments on all of the loans included in the filing. As a result, most GGP-sponsored loans will not move into Fitch's delinquency index until a balloon default occurs at maturity. Four additional Fitch-rated loans included in the bankruptcy, totaling approximately $227 million, mature in 2009. As of the last reading, GGP-sponsored loans accounted for 12 basis points in the index. As of June 30, the total balance of delinquent loans secured by retail properties has surpassed that of multifamily-backed loans, at $3.95 billion and $3.32 billion, respectively. Delinquency volumes for office, hotel and industrial loans stood at $1.94 billion, $1.58 billion and $456.5 million, respectively. When ranked by delinquencies within their individual property types, multifamily led at 4.79%, followed by hotel at 3.04%, retail at 2.84%, industrial at 1.83%, and office, with only 1.28%. SOURCE

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