Fitch Says Maturing CMBS Loans Face Rocky Road Ahead

August is expected to be a challenging month for maturing commercial mortgage-backed securities (CMBS) loans. According to ""Fitch Ratings"":http://www.fitchratings.com/index_fitchratings.cfm, eight U.S. CMBS loans with balances greater than $20 million that are scheduled to mature next month are likely to default.
[IMAGE] The majority â€" two-thirds â€" of these Fitch-rated loans were originated in 2005 and typically had five year terms, little to no amortization, and below market coupons, which will likely result in an increase in maturity defaults in today's higher mortgage rate environment with stricter underwriting standards, Fitch said. Adam Fox, senior director at Fitch, explained that these five-year interest-only loans with below-market rates are proving to be difficult to refinance in today's lower leverage and higher mortgage rate environment.

Despite concerns about near-term maturities, Fitch said it does not expect negative rating actions for recent vintage

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transactions. ""Fitch's surveillance methodology already recognizes 100 percent of potential losses from near-term maturing loans that do not pass a refinance test,"" Fox said.

Currently, 772 Fitch-rated fixed-rate CMBS â€" representing $7.7 billion â€" are slated to mature between August 1 and the end of this year. Of these, 93 loans â€" representing $1.7 billion or 22.0 percent â€" are in special servicing.

According to Fitch, the lack of liquidity in the market for refinancing mortgages coming due raises the likelihood of a special servicing transfer for a modification or extension. The rating agency said this could translate to more loans going into special servicing for the loans maturing for the remainder of 2010, as outlined below:

* August: 115 loans, representing $1.3 billion
* September: 136 loans, representing $1.1 billion
* October: 181 loans, representing $2.1 billion
* November: 160 loans, representing $1.6 billion
* December: 180 loans, representing $1.7 billion

Of the 115 loans maturing in August, 93 loans, having an average balance of $10 million, are current and performing, Fitch said. Office properties secure 40.5 percent of the loans (by dollar balance), followed by retail at 30.4 percent and multifamily at 12 percent. By vintage, 63.2 percent of the maturing loans are from 2005 transactions, followed by 20.3 percent from 2000 and 6.5 percent from 2004 transactions.