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CMBS Delinquencies Moderate, but Rate Still Above 8%: Reports

Special servicers of commercial real estate loans are feverishly pursing workouts and liquidations to minimize investors' losses from nonperforming assets. Their efforts have helped to moderate increases in the number of past due commercial mortgages, but delinquency rates, nonetheless, continue to rise.


Two industry reports released last week served to drive this point home. ""Fitch Ratings"":http://www.fitchratings.com says the delinquency rate on loans held in commercial mortgage-backed securities (CMBS) that it rates hit 8.48 percent in August. ""Moody's Investors Service"":http://www.moodys.com reported a similar increase among its CMBS-rated universe to 8.10 percent.

According to the analysts at Fitch, while the pace of defaults remains elevated, a record number of loan resolutions in August again tempered the effect of $3.1 billion of new delinquencies. The agency says recent defaults on five loans greater than $100 million contributed to a 23-basis point net increase in the U.S. CMBS delinquency rate last month, even though $2.1 billion of loans were resolved or liquidated in August.

More than 200 loans that were delinquent in July did not reappear in August's list of delinquent loans due to a combination of liquidations, repayments upon refinancing, corrections, and modifications.

Adam Fox, a senior director at Fitch, warns that the volume of new delinquencies has not yet subsided. He explained that highly leveraged loans originated at the market's peak continue to default as borrowers seek modifications or opt to hand back the keys.

The biggest new delinquency in Fitch's latest report was an $825.4 million Innkeepers Portfolio, which is secured by 45 hotel properties. Fitch says Innkeepers is in danger of having several of its franchises terminated due to the


borrower's failure to complete property improvement plans. The borrower filed Chapter 11 bankruptcy in July and is trying to secure financing to complete property improvements required to retain the franchises.

Of the $3.1 billion new delinquencies in August, $1.1 billion (36 percent) corresponded to hotel-backed loans, pushing the hotel-specific delinquency rate past 20 percent in Fitch's study. The agency reports current delinquency rates by property type are as follows:

* Hotel: 20.80% (up from 18.64%)
* Multifamily: 14.18% (from 13.87%)
* Retail: 6.11% (from 6.35%)
* Industrial: 5.55% (from 5.20%)
* Office: 5.06% (from 5.08%)

Moody's report shows that the delinquency rate on loans included in U.S. CMBS it follows increased 21 basis points between July and August.

""Delinquency rate increases have moderated over the past three months, but the overall rate itself is expected to continue rising over the near term, with the potential for an occasional spike given the large reservoir of troubled loans in special servicing,"" said Moody's Managing Director Nick Levidy.

According to Moody's, in August, 285 loans totaling nearly $4.7 billion became newly delinquent, while 328 previously delinquent loans totaling $3.7 billion became current, worked out, or were otherwise disposed of.

By property type, hotels again had the greatest increase in their delinquency rate, gaining 156 basis points to 15.47 percent in Moody's study. The agency said in its analysis, too, it was the Innkeepers Portfolio that contributed to the big jump, representing over 75 percent by balance of the newly delinquent hotel loans in the past month.

Moody's recounts current delinquency rates by property type as:

* Hotel: 15.47% (up from 13.91%)
* Multifamily: 13.45% (from 13.24%)
* Retail: 6.59% (from 6.51%)
* Industrial: 6.01% (from 5.49%)
* Office: 6.11% (from 6.04%)

By region, the West and South continue to hold the highest delinquency rates, according to Moody's. By state, the agency notes that over one out of every four conduit/fusion loans located in Nevada is now delinquent, after the state's delinquency rate rose 44 basis points during August to 25.39 percent.

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.

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