The latest read from Fitch indicates continued worsening, in November, across a range of commercial real estate types, with the worst pain being felt in office real estate.
Fitch Ratings-NY-16 November 2009: Job losses and subsequent office loan
defaults, coupled with continued hotel underperformance, resulted in
another monthly increase in U.S. CMBS delinquencies, according to the
latest index results from Fitch Ratings.
U.S. CMBS late-pays rose again in October, up 28 basis points (bps) to
3.86%. The office sector had the highest increase in delinquencies since
September; with 19.4% additional delinquencies followed by hotels, with
a 16.5% increase.
Delinquency rates for all major property types are as follows:
Office delinquencies increased $557.4 million in October 2009.
Contributing to the increase were three newly delinquent loans greater
than $50 million, the largest of which was 550 South Hope Street, a $165
million loan in GSMSC 2007-GG10. The loan transferred to the special
servicer in August 2009 after the borrower, Maguire Properties, stated
that it would no longer fund the debt service shortfalls. Cash flow from
the property has not increased to the banker’s underwritten expectations
at issuance as lease expirations are not yielding the higher assumed
‘Though longer leases on office properties have historically mitigated
sharp changes in performance, continued job losses are expected to
increase pressure on the office sector,’ said Managing Director and U.S.
CMBS group head, Susan Merrick. ‘With the looming possibility of leases
expiring on space under-utilized by companies that have downsized,
office performance may not reach a trough for a few years’.
However, it should be noted that even with the increase in October, the
office sector has the lowest delinquency rate currently at 2.29%.