Among the major property types, only hotel saw its delinquency rate worsen during September, ticking up three bps to 5.91%. New hotel delinquencies outpaced resolutions by nearly a 3:1 ratio by volume, and two hotel loans were the largest additions to the index last month: the $61.7-million Westin – Falls Church, VA (WBCMT 2006-C28); and the $40.8-million Westin – Fort Lauderdale, FL (CWCI 2007-C2).

At the other end of the spectrum, industrial saw the largest decline—31 bps, to 4.84%. This was due mainly to resolutions outpacing new delinquencies by ratio of more than 10:1 by volume. Delinquencies for the other property types were as follows: multifamily, down 20 bps to 5.32%; retail, down 15 bps to 5.19; and office, down 12 bps to 5.05%.

Fitch's delinquency index includes 1,319 loans totaling $19 billion out of the outstanding rated universe of approximately 28,000 loans comprising $397.7 billion. The index omits loans that are 30 to 59 days delinquent, which totaled $641 million in September, up from $586 million in August. Fitch maintains a "stable" outlook on 84% of the CMBS loans it rates.

With regard to new CMBS issues, Fitch thinks the picture overall is positive, yet there are areas that leave room for improvement. Although there have been concerns expressed by Fitch and other sources about declines in the quality of underwriting since CMBS issues resumed in 2010, managing director Huxley Somerville points out that originators are generally exercising prudence. “CMBS originators on the whole are using more sensible assumptions when underwriting a property's cash flow, which is a positive development compared to what took place between 2006 and 2008,” he says.

Furthermore, credit enhancement for CMBS has increased to counteract the underwriting slippage. In fact, credit enhancement levels for AAA CMBS are nearly double those seen in seven or eight years ago. Ratings on new CMBS transactions since 2010 remain very stable and are expected to continue to do so, with only nine loans defaulting thus far in deals originated in the past four years.

Even so, Fitch still sees concerns around potential conflicts of interest among special servicers and the excessive amount of debt that's evident in some large loan deals. “Increased transparency is still needed on the motivations of some CMBS special servicers in relation to the actions that they take on a loan in need of a workout,” says Somerville. “As for large loans, some of them are just too highly leveraged and may have considerable refinance risk, particularly if interest rates are significantly higher at maturity.”