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CMBS delinquencies add up on employment conditions.

Recent unemployment statistics will likely keep commercial mortgage-backed securities (CMBS) delinquencies rising, according to industry analysts.

Hotel delinquencies in the U.S. CMBS universe hit 18.63 percent, followed by multifamily at 13.65 percent, said Fitch Ratings, New York.

Citigroup Inc., New York, reported that fixed-rate CMBS delinquency rates continued to climb in May, rising 43 basis points.

"The multifamily rate continues to increase, but at a slower pace than its recent trend," said Jeffrey Berenbaum, managing director at Citi. "The monthly change in the hotel rate, meanwhile, keeps oscillating around its average and the actual rate has now surpassed multifamily as the leading delinquency sector."

Berenbaum said increasing loan modifications are leading to a higher cure rate compared with historical levels, but recent CMBS vintages are on a par with the 2000 vintage.

"The 2006-2008 vintages now range from 9 [percent] to 11 percent delinquent, on par with the 11 percent rate of the 2000 vintage that has maturities coming due this year," he said.

Fitch's latest index results said a $1 billion net increase in office loan delinquencies fueled a 49 basis point rise in delinquencies to 7.97 percent in May.

"As expected, office loan delinquencies have begun to increase and will continue to rise well into next year," said Mary MacNeill, managing director at Fitch. "Landlords are facing tenant downsizing, and in many cases must offer significant concessions and reduced rent to maintain their existing tenant bases."

The largest newly delinquent contributor to the index in May was the $380 million Columbia Center loan from collateral in Seattle.

"Continued underperformance among large office properties may prefigure a sizable spike in delinquencies," MacNeill said.

According to San Francisco--based Wells Fargo & Co. economic reports, employment increased by 41,000--exempting Census hiring gains across sectors--but the pace of gains satisfied very few.

"Hiring is just barely enough to technically sustain the recovery, but not fast enough to catch up with what a more typical recovery would see," Wells Fargo reported. "Moreover, the pace of job gains is not sufficient enough to generate the income and tax receipts household and policymakers need or have come to expect."

"Just 41,000 private-sector jobs were created in May, reinforcing our view that none of the commercial real estate sectors are out of the woods quite yet," Berenbaum said.

Fitch said industrial property CMBS delinquences were at 5.07 percent.
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Title Annotation:Commercial
Comment:CMBS delinquencies add up on employment conditions.(Commercial)
Publication:Mortgage Banking
Date:Jul 1, 2010
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