Fitch: U.S. CMBS Loan Defaults Grow at Slowest Pace In 5 Years, But Not All Vintages Are Equal.

NEW YORK -- According to Fitch Ratings' newly issued 2005 Conduit Loan Default Study, an additional 336 CMBS loans defaulted in 2004, bringing the total dollar amount of CMBS loan defaults to $10.8 billion, just 4.6% of the cumulative issuance since 1993. "Despite the strong performance statistics, however, some vintages have exceeded Fitch's estimated cumulative 10% vintage-default rate and bear watching," said Mary O'Rourke, Senior Director, Fitch Ratings.

"Overall, the calendar year 2004 was a better year for CMBS collateral than was 2003: there were 153 fewer loan defaults in 2004, resulting in a $600 million decline in the year-over-year default balance," O'Rourke said. On a percentage basis, the overall cumulative default rate of CMBS loans grew by 62 basis points in 2004, the smallest annual gain since Fitch started publishing CMBS default studies.

"Nonetheless," said O'Rourke, "the 1995, 1996, and 1997 vintages have exceeded the Fitch expected cumulative vintage default rate, and Fitch believes it is likely that the 2000 vintage may also exceed the 10% threshold by the time it experiences 10 years of seasoning."

The closely watched CMBS 2000 vintage, which has already experienced defaults in 6% of its collateral, has been the subject of frequent discussions in the industry because much of the collateral in those transactions was aggressively underwritten during peak market conditions. Fitch noted that it is observing the performance of the 2001 vintage with caution, as well.

The $2.7 billion in 2004 newly issued collateral added 2,866 new loans to the study. As of year-end 2004, 1,651 of the total 35,663 CMBS loans had experienced a default.

The multifamily sector is the only major property type that actually experienced an increase in the amount of defaults in 2004. The dollar amount of multifamily loan defaults rose by 43% over the previous year. Fitch noted a marked decline in the amount of multifamily collateral in the makeup of the 28 new transactions added to the 2005 study, noting that federally chartered agencies have been aggressive players in purchasing these loans over the past 18 months.

The number of retail loan defaults declined by more than half in 2004 when compared with that of 2003. "By contrast," said O'Rourke, "the office sector, which was late in experiencing defaults as a result of the earlier recession, is still at an earlier stage of recovery. There was only a slight decline in the number of office loans that defaulted in 2004 compared to 2003."

The lodging industry presented the most improved performance in 2004. After almost three full years of steadily declining performance, this sector showed substantial gains in 2004.

A copy of the full report, '2005 CMBS Conduit Loan Default Study,' dated January 25, 2004, is available on the Fitch Ratings web site at www.fitchratings.com.