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CMBS Loan Losses Are Low, But Not for Long

NEW YORK CITY-A Fitch study finds that just over 1% of CMBS loans defaulted and the losses they produced were low. Loss percentages are expected to rise over time, however, as the real estate markets continue weakening and recent defaults are worked out.

By John Howe | Updated on August 14, 2001

NEW YORK CITY-Of the 248 defaulted commercial loans in CMBS transactions rated by Fitch, only 8 % went through disposition as of the end of last year while 22% returned to current status, according to a new report by the securities rating agency, headquartered here. The firm’s analysis of 19 loans that went through disposition reveals that, on average, 20% of their outstanding principal was lost.

Diane Lans, senior director at the firm, notes that the finding should provide comfort to CMBS investors. “Fitch first found that only 1.02% of CMBS conduit loans defaulted, and further analysis then revealed that the losses related to these defaults were low,” she says in prepared statement. She also warns, however, that the average loss percentage is expected to rise over time as the real estate markets continue to weaken and as more recent defaults are worked out.

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