According to Fitch Ratings, delinquencies in commercial mortgages are on the rise, putting pressure on commerical mortgage-backed securities (CMBS). As noted in prior posts on this blog (Commercial Real Estate Developers Seek Bailout Money and Financials May Face Credit Card Crisis), commercial real estate mortgage and credit card delinquencies are likely to be the next problem areas for financial institutions as the credit crunch spreads through the economy. Mass layoffs are stressing consumer-related industries such as shopping malls as consumers reduce spending.
The press release from Fitch Ratings is reprinted below:
Fitch Ratings-New York-20 April 2009: An uptick in both the number and average loan size of new defaults resulted in a one-quarter point climb in March delinquencies to end the month at 1.53%, according to the latest U.S. CMBS Loan Delinquency Index results from Fitch Ratings.
‘Continued larger loan defaults within the Index are indicative of the moderate to severe macroeconomic stress environment that Fitch now views as applicable to U.S. CMBS performance,’ said Fitch Managing Director and U.S. CMBS Group Head Susan Merrick. ‘Recent vintage transactions, which are typically more concentrated by loan balance and have greater exposure to larger loans without stabilized income at issuance, will prove particularly susceptible to future losses attributable to the prolonged macroeconomic downturn’.
The 2006 through 2008 vintages, which represent 56.6% of the Fitch rated universe, now account for approximately 53.8% of all delinquencies within the Index. The recent vintage defaults are rising at a relatively fast pace compared to averages indicated by historical default curves. Whereas defaults in a non-recessionary environment typically spike three to five years subsequent to issuance, macroeconomic contraction, coupled with the higher leverage and pro forma underwriting that are characteristic of recent vintages, has accelerated default rates for loans in the 2006 through 2008 vintages.
In March 2009, 202 loans rated by Fitch totaling $1.7 billion became newly delinquent. Excluding small balance and B note loans, the average size of the new defaults was $10.1 million. Twenty-one loans with a balance exceeding $20 million were added to the Index last month, of which 15 were collateralized by retail properties. New defaults included the $86 million Metropolis Shopping Center located in Plainfield, IL; the $81 million Southland Mall in Hayward, CA; and the $74 million Deerbrook Mall located in Humble, TX.
Across the Loan Delinquency Index, the average loan balance continues to rise on a monthly basis. As of March, the average size of traditional CMBS loans within the Index stood at $9.2 million, compared to $6.9 million six months prior. The $225 million Riverton Apartments loan, resolved following repayment of outstanding advances and interest on advances from the reserve accounts and letters of credit, represents a notable removal from the Index. However, Fitch expects that loans secured by high-profile properties will continue to default going forward.
In recent months, Fitch has observed a notable increase in the rollover rate, which provides a quantitative measure of the rate at which loans move from 30 to 60 days delinquent. Of the $1.55 billion of Fitch-rated loans that were 30 days delinquent in February 2009, approximately 73% remained in default and moved into the Loan Delinquency Index in March 2009. This compares to a rollover rate of only 21% one year prior. Since October 2008, the monthly rollover rate has averaged 82%. If the measure continues to function as a reasonable predictor of 60 day defaults, the $1.86 billion of loans 30 days delinquent in March, coupled with additional expected maturity defaults, could produce a record increase to the Index in April 2009.
Fitch’s delinquency index includes 1,270 delinquent loans totaling $7.4 billion, out of the Fitch rated universe of approximately 44,000 loans totaling $481 billion. Following a 48% month-over-month increase in total delinquencies, the retail sector has nearly matched multifamily as the leading property type within the index by balance, at $2.5 billion each. When ranked by delinquencies within their individual property types, the multifamily sector continues to lead with a 3.59% rate, followed by retail at 1.79%, lodging at 1.48% and office at 0.65%.
Contact: Susan Merrick +1-212-908-0725, Mary MacNeill +1-212-908-0785, New York or Britt Johnson +1-312-606-2341, Chicago.
Media Relations: Sandro Scenga, New York, Tel: +1 212-908-0278, Email: sandro.scenga@fitchratings.com.
Gregg D. Killoren
victoria1014
