Although more than one-third of delinquent CMBS loans occur in multifamily, "weakness was pervasive across all sectors" in Q1, according to the Reis report. Retail loans, with a delinquency/default rate of 1.62%, add $2.87 billion to the total, followed by office CMBS loans at $1.88 billion and a delinquency/default rate of 1.12%. In multifamily, the delinquency/default rate is 3%.
Among metro areas, Detroit has the highest CMBS delinquency/default rate at 5.72%, an increase of more than 300% from the rate of 1.61% a year ago and nearly double the previous quarter's rate of 3.13%, according to Reis. More than 14% of CMBS-backed multifamily property loans in Detroit are in delinquency.
Second to Detroit is San Bernardino, CA with a 4.61% delinquency/default rate, compared to 0.01% a year earlier. San Bernardino's CMBS foreclosure rate shot up from 0.06% to 1.04% over the last quarter, a spike due in part to the $125.2-million default on the loan for the Promenade Shops at Dos Lagos in Corona, CA.
"We expect default rates to worsen considerably over the next two years," according to Reis, citing the $166.7 billion of CMBS loans maturing between now and 2012. "Unless credit availability improves, it is likely that a good portion of these loans maturing will seek extensions or be forced to enter default on maturity."
With more CMBS loans veering into troubled waters, Reis says the workload for special servicers has increased, a point driven home by two reports Fitch issued last week. The dollar balance of specially serviced CMBS loans rose by 48% during Q1 '09 from year-end '08 to $23.7 billion--and 515% from the end of 2007.
"The recent bankruptcy filing of General Growth Properties and inclusion of over 150 properties in the filing is expected to contribute to record volume of specially serviced loans in the second quarter," says Fitch senior director Adam Fox in a release. Q1 alone saw 474 CMBS loans with a total balance of $5.1 billion transferred to special servicing, according to Fitch. Multifamily loans made up 29.6% of the Q1 transfers by outstanding balance, followed by retail and office properties at 24.1% and 16%, respectively.
In a report titled "Rising Tide of Special Servicing: $24 Billion and Counting," Fitch managing director Stephanie Petosa writes that the increase in servicing "raises the question of servicer preparedness. Fitch is concerned that the rapid rise in specially serviced loans will affect special and master servicers' ability to address loan level issues with the quality CMBS market participants have come to expect."
Fitch last Thursday placed 34 of the 473 CMBS deals the firm watches "under analysis," meaning that Fitch will be issuing a rating action within 30 days. In late March, Moody's Investors Service took a rating action of its own, downgrading 496 tranches of CMBS with an aggregate balance of $15.5 billion while affirming its ratings on 358 tranches worth a total of $30.4 billion.
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
