NEW YORK -- Job losses and subsequent office loan defaults, coupled with continued hotel underperformance, resulted in another monthly increase in U.S. CMBS delinquencies, according to the latest index results from Fitch Ratings.
U.S. CMBS late-pays rose again in October, up 28 basis points (bps) to 3.86%. The office sector had the highest increase in delinquencies since September; with 19.4% additional delinquencies followed by hotels, with a 16.5% increase.
Delinquency rates for all major property types are as follows:
--Office: 2.29%;
--Hotel: 6.81%;
--Retail: 3.55%;
--Multifamily: 6%;
--Industrial: 3.09%.
Office delinquencies increased $557.4 million in October 2009. Contributing to the increase were three newly delinquent loans greater than $50 million, the largest of which was 550 South Hope Street, a $165 million loan in GSMSC 2007-GG10. The loan transferred to the special servicer in August 2009 after the borrower, Maguire Properties, stated that it would no longer fund the debt service shortfalls. Cash flow from the property has not increased to the banker’s underwritten expectations at issuance as lease expirations are not yielding the higher assumed rental rates.
‘Though longer leases on office properties have historically mitigated sharp changes in performance, continued job losses are expected to increase pressure on the office sector,’ said Managing Director and U.S. CMBS group head, Susan Merrick. ‘With the looming possibility of leases expiring on space under-utilized by companies that have downsized, office performance may not reach a trough for a few years’.
However, it should be noted that even with the increase in October, the office sector has the lowest delinquency rate currently at 2.29%.
Hotel delinquencies increased $493.9 million in October. The hotel sector has the highest property type delinquency index at 6.81%, with nine delinquent loans over $100 million. Newly delinquent hotel loans included three related Red Roof Inns (RRI) loans that had been included in the Index in August. The loans, totaling $292.8 million, became 60 days late after reverting to 30 days in September.
The largest newly delinquent loan in the index is Riverton Apartments, a $225 million loan collateralized by a 1,230 unit rent-stabilized, multifamily housing project located in Harlem, NY. The loan has been in special servicing since August 2008 after the borrower was unable to convert rent-stabilized units to deregulated units as quickly as projected when the loan was underwritten. The loan had been using debt service reserves to remain current.
By dollar balance, retail loans continued to lead the index with $4.9 billion of delinquent loans, stable from September. The delinquency volume for multifamily loans rose only slightly to $4 billion from $3.9 billion, while hotel loan delinquencies increased from $3 billion last month to a total of $3.5 billion in October. Loans collateralized by industrial properties ended the month with $746 million of delinquencies, a 3.8% month-over-month increase.
The three most recent vintages continue to underperform the overall index, with 2006 and 2007 showing dramatic increases in the last quarter of 2009. Recent vintage delinquencies were as follows:
--2006: 3.95% (from 2.13% in June);
--2007: 4.28% (from 1.83% in June);
--2008: 7.82% (from 6.29% in June).
Fitch's delinquency index includes 1,910 loans totaling $17.8 billion of the Fitch rated universe of approximately 42,000 loans comprising $463 billion that are at least 60 days delinquent or in foreclosure. The Index excludes Fitch-rated loans that are 30 to 59 days delinquent, which currently total $4.1 billion, an increase from $3.0 billion one month prior.
Contact: Mary MacNeill +1-212-908-0785, Susan Merrick +1-212-908-0725, 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.
Additional information is available at www.fitchratings.com.
