Fitch: Special Servicers Mitigate CMBS Losses

The number of loans held in commercial mortgage backed securities (CMBS) resolved by special servicers in 2010 was more than four times the amount in 2009, according to Fitch’s CMBS loss study released Wednesday. However, despite this positive movement, Fitch remains uncertain what next year will bring amid current economic uncertainty.

“Special servicers have been increasingly successful selling properties and working with borrowers for discounted loan payoffs,” senior director Britt Johnson said.

After resolving 516 loans totaling $3.6 billion in 2009, special servicers resolved 1,427 loans totaling $19.4 billion in 2010.

At the same time, the average resolution timeline fell from 19.3 months in 2009 to 15.4 months in 2010, according to Fitch.

Fitch attributes this shortened timeline to improved economic conditions and a trend among special servicers toward quicker disposition methods, including note sales and discounted payoffs. Fitch notes that some special servicers relied on bulk sales, which Fitch says are beneficial in reducing loan-level expenses.

Average loss severity also declined, falling from 57 percent to 53.4 percent for the year. Cumulative loss severity, on the other hand, rose to its highest recorded level in 2010 arriving at 42.9 percent.

In addition, special servicers completed loan modifications for 343 of the 1,427 resolved CMBS in 2010. All but 10 of these were modified without losses to their trusts.

Of commercial property types, more retail loans were disposed than any other property type. For the year, 254 retail properties totaling $1.6 billion were resolved up from 61 loans totaling $291.4 million in 2009.

Multifamily ranked second with 188 properties totaling $1.2 billion for the year. Multifamily loan resolutions are also up from 2009 when resolutions totaled 78 loans and $401.7 million.

Fitch notes in its report that “While multifamily performance has stabilized somewhat during 2011, this property type still leads others in the amount of defaulted loans.”

“If lending continues through Fannie Mae or Freddie Mac, as well as other sources, Fitch expects high levels of multifamily dispositions in 2011 and 2012,” the report states.

With 162 dispositions, office properties fall third in line in terms of number of dispositions. However, in terms of loan balances, office properties outpace multifamily properties with $1.6 billion.

“With leases set to expire in a weaker economy, office landlords will have to continue lowering rents and paying for tenant improvements and rent concessions,” managing director Mary MacNeill said.

As with retail and multifamily properties, office properties showed an increase from 2009 when the category saw 30 dispositions totaling $150.4 million.

Industrial properties and hotels fell in line next with 65 assets at $375.9 million and 58 assets at $416.4 million respectively.

“There are still many delinquent hotel loans to resolve, though dispositions will slow next year if the lending environment tightens,” MacNeill said.

Source:  DSNews

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