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Commercial Real Estate Delinquencies Rise

July 9, 2010 By Chuck Leave a Comment

Over the past 18 months or so I have discussed the commercial real estate market and how it would be the next ‘big problem’.

Today we learn the latest commercial real estate delinquency statistics and it continues to look bad.

According to Fitch Ratings the delinquency rate in commercial mortgage backed securities (CMBS) has risen to 8.14% in June.

Fitch states that the number of distressed properties continues to grow.

‘The number of distressed properties continues to grow,’ said Managing Director Mary MacNeill. ‘If borrowers are unable to access capital for leasing costs or are unable to restructure their loans to a leverage level commensurate with sustainable property values, they may stop subsidizing debt service payments.’ (Reuters)

June delinquency rates by property type, as compared with May, are as follows:

  • Hotel: to 18.62% from 18.63%;
  • Multifamily: to 13.82% from 13.65%;
  • Retail: to 6.19% from 6.03%;
  • Industrial: to 5.48% from 5.07%;
  • Office: to 4.84% from 4.59%.

These statistics suggests that the economic growth that is being touted by Washington is not what they say it is. I continue to expect further declines in both residential and commercial real estate markets for at least another year.

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Filed Under: Market Updates Tagged With: , ,

Commercial Real Estate Defaults To Exceed 11%

April 21, 2010 By Chuck

Fitch has issued new guidance on the commercial mortgage market, in particular commercial mortgage backed securities (CMBS).

Fitch sees US CMBS loan defaults exceeding 11% by end of 2010

New CMBS loan defaults increased more than five-fold last year (1,464 conduit loans totaling $17.75 billion), with 34% taking place in the fourth quarter alone.

‘Fourth-quarter default rates reached their highest ever levels both in principal balance and number of loans with no clear signs of stabilization,’ said Managing Director Mary MacNeill. In fact, 2009 defaults on their own surpassed the cumulative number from the inception of the CMBS market through 2008 ($17.74 billion).

Another area of concern is large loan defaults, which increased dramatically last year. In 2009, 56 loans over $50 million in size defaulted compared to just five in 2008. Not surprisingly, most of the defaulted loans came from 2006-2008 vintages. Delving deeper into specific vintages, 2007 deals led in defaults last year, accounting for 35.6% by principal balance. ‘The aggressive underwriting and higher leverage in the 2007 vintage is leading to substantially higher default rates,’ said MacNeill. Fitch predicts 10-year cumulative default rates on 2007 Fitch-rated CMBS to reach 27%.

For the first time in five years, multifamily was not the property type with the most new defaults, with that distinction going to retail (32.3%) last year. Following retail was multifamily (22.1%), office (20.2%) and hotel (17.8%). Fitch projects sizeable default increases for each property type, with rates likely to increase at accelerated rates for office and hotel loans.

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Capmark Investments Enters Chapter 11 and New Loan Delinquency Projections

January 16, 2010 By Chuck

Another one bites the dust… Capmark Investments LP files Chapter 11 bankruptcy, and updated commercial loan delinquency projections…

NEW YORK, Jan 15 (Reuters) – Capmark Investments LP, which said it manages more than $1.7 billion of equity real estate and mortgage-related investments, filed for bankruptcy protection on Friday, less than three months after its parent, Capmark Financial Group [CPFNG.UL], made its own filing.

The partnership once known as GMAC Institutional Advisors has more than $1 billion of assets and liabilities, according to its Chapter 11 petition filed with the U.S. bankruptcy court in Wilmington, Delaware.

Capmark Investments said it hired Lazard Freres & Co as its investment banker and financial adviser for the bankruptcy process. A spokesman for the partnership declined to comment.

Capmark Financial, a commercial real estate company, had sought protection from creditors on Oct. 25, wiping out the investments of several private equity firms including Kohlberg Kravis Roberts & Co [KKR.UL].

The company cited deteriorated financial and real estate market conditions and a lack of available capital for its filing, in which it reported $20.1 billion of assets and $21 billion of liabilities.[…] Source: Reuters

And while we are on the topic of mortgage related investments, take a look at the latest projections on commercial loan delinquencies issued today:

Moody’s: US CMBS loan delinquencies rise to 4.9%; 8%-9% rate expected by end of 2010. 

016 Capmark Investments Enters Chapter 11 and New Loan Delinquency Projections    Delinquencies on US CMBS loans in conduit/fusion deals ended 2009 at 4.9%, as measured by the Moody’s Delinquency Tracker (DQT). They began 2009 at 0.95% and therefore have increased five-fold during the year.

016 Capmark Investments Enters Chapter 11 and New Loan Delinquency Projections   Moody’s expects loan performance to deteriorate further in 2010 and projects that the DQT will reach 8%-9% by the end of the year. 

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Commercial Real Estate Continues To Falter

December 22, 2009 By Chuck

The Bloomberg article says it all -

Dec. 21 (Bloomberg) — Commercial property values in the U.S. declined in October to the lowest level in more than seven years as unemployment reduced demand for apartments, offices and retail space. [...]

[...]Values are dropping as U.S. unemployment climbs and consumers cut spending. Office vacancies may approach 20 percent next year as employers hold off hiring, commercial property brokers Jones Lang LaSalle Inc. and Grubb & Ellis Co. said last month. [...]

[...]An estimated $1.4 trillion of commercial real estate debt is scheduled to mature over the next five years and Foresight estimates that 53 percent of it is “underwater,” meaning the value of the property is less than the mortgage, Anderson said.

[...]The delinquency rate for U.S. commercial mortgage-backed securities rose to 4.47 percent as of the end of November, Moody’s Investors Service said on Dec. 10. That’s almost six times the year-ago rate of 0.75 percent. (emphasis added)

Delinquencies for commercial real estate mortgages held by banks may rise to 5.6 percent in the fourth quarter and reach as much as 8 percent next year, Anderson said. [...]

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More Debt Now At Risk of Downgrade – Impacts $450 Billion

November 18, 2009 By Chuck

This evening Moody’s has placed under review for downgrade hybrid and subordinated debt totaling $450 Billion of securities.

Moody”s Investors Service has placed under review for possible downgrade the ratings of 775 hybrid and subordinated debt securities issued by 170 bank families in 36 countries following a change to its rating methodology for these instruments.

The reviews follow the rating agency”s announcement that it has changed the way in which it rates these securities to take into account the fact that some recent government interventions in troubled banks have not helped, and have even been to the detriment of, the holders of these types of securities. For example, in some cases, support packages have been contingent upon a bank”s suspension of coupon payments on these instruments as a means to preserve capital.

I say again.. We keep being told that everything is getting better. This only shows more (not less) deterioration is taking place within the financial markets.

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Commercial Mortgage Backed Securities (CMBS) Defaults To Rise

August 18, 2009 By Chuck

S&P report warns CMBS defaults on the rise, peak default period ahead according to a report issued by Standard and Poors on August 18, 2009 –

With the effects of the recession visible across all commercial property sectors and debt financing scarce, defaults among rated North American commercial mortgage-backed securities (CMBS) increased last year.
The 529 new CMBS defaults in 2008 is more than twice the number reported in 2007–and future periods are likely to experience higher default levels as more recently issued loans enter their peak default periods.
For its 2008 default study, S&P studied the characteristics of 69,317 loans originated for securitization from 1993 through 2007 with a total original principal balance of $949.21 Billion. Loans originated between 2005 and 2007 made up 41.45% of the studied population by loan count (28,732) and 56.57% by principal balance ($537 Billion).
At the end of 2008, 3,107 loans ($20.43 Billion) in rated CMBS transactions had defaulted on a cumulative basis. For 2008, the cumulative default rate by loan count was 4.48%, and the annual default rate was 0.76%. In terms of principal balance, the 529 loans that defaulted in 2008 had a principal balance of $4.43 Billion, significantly more than the $1.85 Billion that defaulted in 2007.
Of the major property types, office space saw the greatest increase in defaulted loans in 2008, as 389 office loans defaulted, up 30.98% from 297 in 2007.
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Comercial Mortgage Delinquency Up 585%

July 25, 2009 By Chuck

No that is not a misprint. Delinquencies on commercial mortgage backed securities (CMBS) is now at a 12 month high of almost $29 Billion per data released by Realpoint Research.

Realpoint reports that over the past year the delinquencies has risen from $4 Billion to the now record amount of $29 Billion.

Late loans across the country are up an “astounding” 585 percent from a year ago when just $4 billion were delinquent, reported the Horsham, Pa.-based research firm. The low point for delinquency was March 2007 when $2 billion was delinquent.

Realpoint reported that the total unpaid balance for all commercial backed mortgage securities pools under review by the firm was $817 billion in June [...]

[...]The three states with the most delinquent loans accounted for more than a quarter of the unpaid balances. Realpoint said that California with almost $3 billion in delinquent loans, or 10 percent of the exposure, and Texas with $2.5 billion, or 9 percent of all delinquencies, “remain a major concern.” In California, the delinquent properties are spread across the state, compared to Texas where the problems are located mainly in Dallas-Fort Worth.

The other states among the top 10 are Michigan, Arizona, New York, Georgia, Hawaii, Nevada and Illinois. If delinquencies are counted by only metro areas, Phoenix has the highest at $1 billion and San Francisco has the lowest at $605 million.[...]

I fully expect this situation to deteriorate further as the impact of the economy, credit conditions, and growing unemployment continues to spread throughout the nation.

Filed Under: Market Updates Tagged With: ,

Japanese CMBS Gets Cut By Moody’s

July 16, 2009 By Chuck

Moody’s concluded its review of 339 tranches of commercial mortgage backed securities (CMBS) with an original balance of 1.44 trillion yen ($15 Billion US) involving 57 Japanese CMBS deals.

The review was prompted by Moody”s view that the turmoil affecting the Japanese CMBS market — especially major developments in the real estate financing market — could continue for some time. Moodys downgraded 293 tranches with an original balance of 1.16 trillion JPY for 53 deals.

Moodys confirmed the ratings of 46 tranches with an original balance of 0.28 trillion JPY for 27 deals. Moodys did not upgrade any tranches.

20% of Aaa classes were downgraded by 1 to 2 notches (1.1 notches on weighted average basis), and 8% were confirmed. 34% of Aa classes were downgraded by 1 to 4 notches (1.6 notches on weighted average basis), and 15% were confirmed.

44% of A classes were downgraded by 1 to 7 notches (2.3 notches on weighted average basis), and 9% were confirmed.

77% of Baa or lower classes were downgraded by 1 to 8 notches (3.0 notches on weighted average basis), and 2% were confirmed. Moody”s actions reflect Moodys concern that loan defaults are increasing, prompted by the decline in refinancing possibilities for existing CMBS borrowers because of the liquidity crisis.
Filed Under: Market Updates Tagged With: ,
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