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Commercial Real Estate Debt Delinquencies Up In October, Fitch Says
Tighter credit conditions make it tougher for borrowers to refinance.
November 17, 2008
The commercial real estate market saw a rise in loan delinquencies last month because there are fewer lenders willing and able to refinance mortgages for commercial properties such as malls and office buildings.
With the US credit markets frozen that pace of delinquencies is expected to continue to climb in coming months.
Credit rating agency Fitch said on Monday that delinquencies of the loans pooled into bonds, commercial mortgage-backed securities, rose six basis points in October to 0.51%.
“With CMBS issuance at a standstill and portfolio lenders cautiously managing their balance sheets, borrowers are facing increased difficulty accessing capital to refinance maturing loans,” Fitch said in a prepared statement.
The rating agency added that given the illiquidity in the market, it expects the proportion and dollar balance of maturity defaults to continue to grow at a fast pace with delinquencies approaching close to 75 basis points by the end of this year.
The proportion of non-performing matured loans within the loan delinquency index has increased significantly over last year and particularly has trended upward in recent months. In October 2007, non-performing matured loans made up 16% of new delinquencies and 4% of the overall index. This compares to the 42% of new delinquencies and 15% of the overall index comprised of non-performing matured loans one year later, as of October 2008.
Within its portfolio of rated CMBS transactions, Fitch has identified 274 fixed-rate loans totaling $987.8 million and 29 floating-rate loans totaling $2.4 billion that are scheduled to mature in November or December 2008. All but two of the floating-rate loans have extension options remaining and are likely to extend as performing loans. Although earlier in the year, Fitch expected those fixed-rate loans with high coupons and strong debt service coverage ratios to find financing, even those loans are facing maturity defaults as lending has come close to a halt.
“Timely repayment of maturing loans will continue to be a concern until global economic pressures subside and both lender and investor confidence are restored,” the rating agency warned.
The loan delinquency index measures loans that are at least 60 days delinquent within the universe of all Fitch-rated transactions--475 transactions worth $553.1 billion.
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