Fitch: Special Servicing for CMBS Loans on Downswing

As of mid-March, approximately 200 loans have transferred this year, marking a dramatic descent from the 631 loans in the first quarter of 2010.

March 21, 2011
By Barbra Murray, Contributing Editor

Courtesy Flickr Creative Commons user chrisdlugosz

Fitch Ratings is seeing a new trend in commercial mortgage-backed securities loans in the U.S., as noted in the global rating agency’s latest newsletter. The pace and quantity of CMBS loans transferring into special servicing has started to decline.

“There is more liquidity in the market than there was last year at this time,” Mary MacNeill, managing director with Fitch, told CPE.

The closing of the first quarter is still a week away, but numbers up to this point already tell the story. As of mid-March, approximately 200 loans have transferred this year, marking a dramatic descent from the 631 loans in the first quarter of 2010. Signs of the pattern emerged last year. A total of 2,162 loans valued at $37.5 billion went into special servicing in 2009, but in 2010, the volume dropped by approximately 25 percent to 1,646 loans totaling $28.4 billion.

The sizable decline in loans moving to special servicing, however, is not expected to continue at the same rate. “We don’t think we’ll see it stay at this level,” MacNeill said. “There are still some loans that are underperforming that will be transferred.” The retail and office sectors are particularly susceptible, she noted, with many leases due to roll over next year and some leases not being renewed, especially in the office market, because some businesses just don’t need the space.

Still, improvement will continue. “This year, there are more lenders out there and it doesn’t take as long to refinance or do modifications. Not everything that goes into special servicing goes into delinquency.”