Fitch Ratings is reporting that defaults on fixed-rate conduit U.S. CMBS loans are continuing at a record pace, with cumulative defaults rising to 9.5 percent through June 2010.

According to Fitch, the 133-basis-point climb from the first quarter is consistent with the firm’s expectation of an 11 percent cumulative default rate by the end of the year.

“Not surprisingly,” the firm wrote in a report on Friday, “recent vintages are driving the pace of defaults. … Loans are considered defaulted if they have been reported 60+ days delinquent at least once.”

Fitch managing director Mary MacNeill said in the report that large, highly leveraged loans are adding to the rising rate of defaults, with 14 loans greater than 100 million defaulted in 2010.

A mid-year analysis by Fitch Ratings indicates that more than one-fifth of the CMBS loans scheduled to mature during the second half of 2010 are in special servicing. However, the agency expects no negative ratings actions related to those loans in the short term, since a refinancing test is built into its most recent ratings review.

All told, 960 loans valued at $9.6 billion will come due from July through December. More than 10 percent of the loans—103, representing and 23.3 percent by value—have been transferred to a special servicer. “While liquidity appears to be slowly returning to the market, the time it takes for borrowers to refinance has continued to be a lengthy process,” wrote Adam Fox, a senior director at Fitch, in a note accompanying the update. “The lack of liquidity in the market in the market for refinancing mortgages coming due increases the likelihood of a transfer to special servicing for a modification or extension.”  Twenty-seven of the loans in special servicing—representing 48 percent by value—are current.

In July, for example, 148 loans will mature. Retail properties lead the list by dollar value, backing 40 percent of the loans. Office assets secure 34 percent and multifamily properties back 12 percent. Loan values average $8.5 million, and 133 of the 148 loans are considered current and performing. The majority of the loans maturing next month—57 percent—are 2005 vintage. Fitch projects that eight of the 11 loans projected to mature in July will default. But only four loans are projected for a loss, with losses from defaults expected to be less than 5 percent.

Fitch’s latest update follows continued signs of a thaw in the CMBS market. JP Morgan Chase and Bank of America are offering a $650 million securitization that will help refinance the $1.3 billion Bank of America Tower in Midtown Manhattan. That deal follows a $716 million loan pool brought to market this month by JP Morgan Chase.

Courtesy Flickr Creative Commons user on1stsite

Here’s some news to put a damper on recovery: According to Fitch Ratings, CMBS delinquencies are on the rise in the office sector. A $1 billion net increase in office loan delinquencies caused a 49 basis-point rise in delinquencies, translating to a 7.97 percent increase during the month of May.

Throughout the month, 44 office loans went delinquent, including 14 loans with a balance greater than $20 million.

The largest new delinquency was the $380 million Columbia Center loan, whose collateral is located in Seattle. Sponsored by Beacon Capital Partners, L.L.C., the loan was transferred to special servicing in February and is now 60 days past due. Other major loans include a $180.9 million balance on the DRA-CRT Portfolio I, with collateral in Florida, Maryland and North Carolina, as well as a $165 million balance on 550 South Hope St. in Los Angeles.

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

Delinquency increases aside, the office sector is still the strongest amongst traditional property types with a rate of 4.59 percent. The hotel sector had the highest delinquency rate at 18.63 percent, while multi-family was second with a rate of 13.65 percent. Retail and industrial posted rates of 6.03 percent and 5.07 percent, respectively.

Fitch’s delinquency index includes 2,938 loans totaling $35.4 billion that are at least 60 days delinquent or in foreclosure.

Festival Bay Mall. Courtesy Flickr Creative Commons user LancerE

By Dees Stribling, Contributing Writer

General Growth Properties Inc. has filed documents with the U.S. Bankruptcy Court for the Southern District of New York describing its proposed deal with Brookfield Asset Management, Pershing Square Capital Management and Fairholme Capital Management. According to that documentation, the three will pony up $6.55 billion in new equity at $15 a share, which will amount to a Get Out of Jail Free card for GGP–or rather, get out of bankruptcy.

What would the Brookfield trio get for their big bucks? Shares amounting to two-thirds of GGP’s outstanding total. Also, they would receive 120 million warrants, allowing them to buy even more stock at $15 a share.

The Brookfield trio wants “stalking horse” status from the bankruptcy judge, who will decide the matter officially on April 28. That means other suitors (that means you, Simon) will have to top the offer to have any hope of walking away with GGP and its sweet portfolio of 200 or so regional malls. In a statement, Brookfield CEO Bruce Flatt called the chance to acquire control of GGP “one of the great real estate value opportunities currently available in the capital market.”

First CMBS of 2010 in the Wings

The Wall Street Journal reported on Wednesday that the Royal Bank of Scotland Group is preparing a $500 million CMBS offering, with the top slice priced 0.95 percentage points over swaps. It would be the first CMBS to hit the market since December.

Word of the deal came on the last day of the legacy CMBS program through the Term Asset-Backed Securities Loan Facility, or TALF. In its last month of operation, the Federal Reserve Bank of New York settled $857 million worth of CMBS. The Fed has settled about $12 billion in legacy loans throughout the course of the program, which kicked off last summer.

Meanwhile, according to Trepp, CMBS delinquencies were up in March by 89 basis points, to 7.61 percent, the highest bump since last summer. About 40 basis points of that figure was caused by the technical foreclosure of Stuyvesant Town/Peter Cooper Village, however.

Jobs Optimism Not Justified?

Data from payroll processor Automatic Data Processing Inc. reported on Wednesday that its number-crunching showed a loss of 23,000 jobs in the private sector in March, contrary to the prevailing attitude of optimism about job creation among economists. Still, ADP’s numbers have been known to be at odds with the U.S. Department of Labor’s official unemployment numbers, which will be released on Friday.

According to ADP, manufacturing and construction took the hardest hits,  overshadowing a modest increase in service-sector employment. 

Wall Street had a down day to end the first quarter of 2010. The Dow Jones Industrial Average dipped 50.79 points, or 0.47 percent. The S&P 500 dropped 0.33 percent and the Nasdaq lost 0.53 percent.

The year 2010 will bring some sweetness and some bitterness to the table, according to Jones Lang La Salle’s January Global Market Perspective.

According to the report, international real estate markets are showing more a more orderly, thoughtful approach to business, influenced by caution that remains from last year’s turmoil.

“The biggest change versus a year ago was that people didn’t know where the bottom was going to be. There was so much irrational fear,” Jones Lang LaSalle managing director of Los Angeles brokerage Whitley Collins told CPE. “I think everybody now feels like if the bottom is not behind us, we may be in it, or it’s ahead of us soon, but it’s not much further down.”

However, Collins cautioned that there is a flip side to the cautious optimism seen in the current market: There isn’t a lot of fast growth on the horizon. That slow recovery is due to a number of factors, including a stubborn national unemployment rate that continues to hold steady at 10 percent.

On the occupancy side, Collins forecasts a very gradual recovery with one to two years before empty space on the market will begin to be absorbed. That’s due to what he calls “shadow space”: the amount of empty space that is not on the market. Since not every lost job translated into space made available for lease, that means that many firms are sitting on empty square footage – and that will need to be absorbed before vacancy rates can begin to go down.

“If nine out of ten companies have cut back (on employees), I bet you only one of those nine has really put back space on the market … so if you go forward, they’ll have to absorb the space that’s now empty,” Collins said. “Things are starting to stabilize, the bottom is upon us, but the road to recovery is going to be a long one, especially on the office side because we have so much space to absorb before they’ll take new space.”

He said his rule of thumb is to add three to five percent to the national office vacancy rate. Since that vacancy rate hit a 15-year high at 17 percent during Q4 2009, by Collins’ estimates the true U.S. vacancy rate could be anywhere from 20 to 23 percent.

According to the JLL forecast, corporate occupier conditions have improved. That said, absorption of office space is expected to lag behind the general pace of economic recovery with the exception of markets such as Singapore, Beijing, and some Indian cities that are facing a large supply pipeline. Regional office markets are expected to turn the corner by the end of this year and return to normal growth trends in 2011.

On the sales side, Collins said last year’s activity was at a standstill, providing positive fallout for this year as there now are plenty of interested parties. While lenders are still cautious, he said that vulture funds and opportunistic funds are looking to take advantage of the fact that commercial real estate values have dipped.

“Last year was the least amount of sales volume in the last twenty years,” he said. “Nobody did anything and there was a lot of reasons for that: the fear, but also there wasn’t money out there. No one wanted to take a chance. No one wanted to lend and no one wanted to invest. In this economy, as we enter 2010, we now see a lot of money on the sidelines that’s ready to buy.”

The report’s cautious optimism extended to the beleaguered commercial-backed mortgage securities market, which was found to be making a comeback in the United States and more strongly in Europe. Despite nervous attitudes on the part of many existing bondholders, the forecast said this year is just the beginning for the European CBMS market – and, one may assume, for its U.S. counterpart as well.

Life insurance companies and REITs were also pointed out as bright spots in 2010. The former are expected to be major debt lenders, while global REIT equity prices have rebounded by more than 100 percent since their lows in March 2009. In terms of market capitalization, the report notes, the top ten U.S. REITs boast more cash on hand and availability under credit lines than they had at the top of the market.

“Now that the problems have largely been quantified,” the report says, “the search for solutions is on.”