Relentless Worsening In Commercial Real Estate Delinquencies

strip mall empty

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: 2.29%;
  –Hotel: 6.81%;
  –Retail: 3.55%;
  –Multifamily: 6%;
  –Industrial: 3.09%.

  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
  rental rates.

   ‘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%.

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