NEW YORK CITY-The forecast for legacy CMBS continues to grow more dismal, with Trepp saying Wednesday that the delinquency rate reached an all-time high in May. That same day, Fitch Ratings reported that the inventory of US CMBS loans in special servicing reached an historic peak at the end of last year.
May’s highest-ever delinquency rate of 8.42% represents a jump of 40 basis points from April, which similarly saw a 41-basis point increase over March, according to Trepp. The CMBS information provider says that aside from February, a month-to-month increase averaging 40 basis points has been the norm since last fall. It holds true for the percentage of seriously delinquent CMBS loans, which finished May at 7.55%, up 41 basis points over April.
Among property types, Trepp says only industrial showed a monthly decline in the delinquency rate, down 10 basis points from April to 5.34%. Fastest rising was hotel CMBS delinquencies, up 129 basis points and now well over 18%. Multifamily’s 28-point jump brought the sector up to 13.34% delinquency, while retail rose 42 basis points to 6.86%. The 44-point increase in delinquency for office properties brings the rate for this sector to 5.81%.
Although 2009 saw more CMBS loans resolved than in previous years, Fitch says the volume of specially serviced loans at year’s end was at an all-time high, with 4,435 loans totaling $74 billion. The ratings agency says in its “US CMBS Loss Study 2009” report that it expects loss severities to continue to outpace the cumulative historical average of 37.2% through 2011. Loss severities for Fitch-rated CMBS reached 57% for ‘09 alone, with lodging the highest-loss sector at 81.9%.
“For the next couple of years, loans liquidated with losses will be those assets with the highest perceived significant value declines or those with borrowers unwilling to put additional equity into their properties to effectuate a modification,” according to Fitch’s report. “The amount of defaulted loans resolved with losses will continue to be deferred by modifications.”
The average time for a loan to reach resolution remained steady in ’09 at 19 months, Fitch says, and modifications helped move loans through special servicing more quickly. “Assets will take longer to resolve as special servicers continue to see high volumes of underperforming loans,” says Fitch senior director Richard Carlson in a release. “Continued high inventory and the declining frequency of modifications means there is no relief is in sight."
In May, Moody’s Investors Service said loss severities on liquidated loans backing US CMBS increased steadily throughout ‘09 and peaked in December at 55.4%. The agency also reported a 60-basis point rise in the delinquency rate during April for Moody’s-rated CMBS, ending the month at 7.02%
Over the past 30 days, Moody’s has downgraded more than 100 classes of US CMBS, while affirming its ratings on about six dozen more classes and placing a similar number on review for possible downgrade. It has been similarly busy in recent weeks with ratings actions on European and Japanese CMBS issues.
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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.
