Monday, August 10, 2009

US CMBS delinquencies could exceed 5% by year end

US CMBS delinquencies could exceed 5% by year end

That 5 per cent delinquency statistic comes from Fitch’s latest assessment of the US CMBS market, which also found that loan delinquencies - as measured by its proprietary index - gained nearly a half-point to end the month of July at 3.04 per cent.

But it is the absolute numbers that are truly eyebrow-raising. From the report, emphasis FT Alphaville’s:
- For the past several months, delinquencies have increased at a rate of over $2bn per month

- the 30-to-60 day rollover rate has consistently exceeded 50%, and resolutions from the index have been slow due to the lack of refinancings and dispositions

(The rollover rate is a measure of the speed at which loans move from 30 to 60 days delinquent; one year ago, the rate was 21 per cent. Since October 2008, however, the monthly rollover rate has averaged 82 per cent, according to Fitch data.)

According to the rating agency, contributors to the rising number of past due loans include:

the current volume of performing specially serviced loans; the number of loans with low coverage that are depleting their reserves; and economic factors such as rising unemployment and lack of consumer spending, which will continue to impact commercial property fundamentals going forward.Moreover, if current trends continue:

delinquencies are likely to pass 5% by the end of 2009, though the likelihood of large recent vintage proforma loans depleting their debt service reserves by year-end could drive the percentage of delinquent loans past 6% by first-quarter 2010.

And as with subprime RMBS, the vintages from 2006 onward have contributed the bulk of the delinquencies, though on a sector level the most dramatic increases in non-performing loans have come from those collateralized by hotel and retail properties, which Fitch said rose by 41 per cent and 21 per cent respectively.

New hotel delinquencies included 17 loans ranging in size from $852 thousand to $183 million, of which six had a balance over $50 million. The largest new hotel delinquencies included the $182.6 million RRI Hotel Portfolio, the $90 million Four Seasons San Francisco, and the $80.8 million Crowne Plaza Hotel Astor-New Orleans loans. Not counted in July’s delinquency number are an additional $4.77 billion of hotel loans that are currently paying debt service but are with the special servicer and $225 million of hotel loans that are 30 days delinquent.

As for the retail loans, General Growth Properties portfolio is a not insignificant contributor to $1bn uptick in delinquencies there.
Three new delinquencies had current loan balances in excess of $100 million each: the $142.7 million Beachwood Place Mall, the $122 million Coronado Center, and the $112.5 million Hulen Mall loans. All three loans are sponsored by General Growth Properties (GGP).

GGP, the second-largest operator of shopping malls in the US, filed for Chapter 11 bankruptcy protection in April. According to research by Aaron Bryson, a CMBS strategist at Barclays Capital, loans of General Growth-related properties were widely securitised and account for $15bn of the $800bn CMBS, the most of any other real estate investment trust.

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