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More CMBS Loans Exit Special Servicing: Fitch Ratings

The population of CMBS loans handled by special servicers is declining, which could signal a turning point for the commercial real estate sector, ""Fitch Ratings"":http://www.fitchratings.com/web/en/dynamic/fitch-home.jsp said in a report Friday.

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As of June 30 of this year, the balance for CMBS loans shrunk to $80.5 billion, down from $85.5 billion in June 2011 and a significant drop from $92 billion in June 2010.

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Fitch said the decline is due to special servicers working loans out and a fall in the rate of loans transferring into special servicing.

While the number of CMBS loans handled by special servicers is shrinking, the time these loans spend in their hands is increasing.

As of June 2012, the number of months CMBS loans spent in special servicing increased to an average of 18.6 months, up from 14.8 months in June 2011 and 10.8 months in June 2010.

""After a large number of CMBS loans were worked out last year, special servicers are now grappling with the more challenging assets that will take longer to resolve,"" said Managing Director Stephanie Petosa in a release. ""These loans are usually larger, complicated loans which often are not the best candidates for liquidation.""

As a result, Fitch said smaller CMBS loans will most likely be targeted for liquidation, and said larger loans are more likely to be modified instead.

From 2010 to June 2012, the average balance of modified loans was $28 million, while the average balance of liquidated loans was $9 million.

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