The News: Retail Again Tops CMBS Defaults: Fitch

For the sixth time in the past seven months, the retail sector has claimed the dubious distinction of generating more new delinquent securitized loans than any other commercial property category, according to an analysis released by Fitch Ratings yesterday. Fitch predicts a steady increase in loan defaults generated by shopping centers and single-tenant properties this year as soft consumer spending and bankruptcies continue to plague the retail sector.Specifically, Fitch tracked 46 retail loans, valued at $277 million, that became newly delinquent in February. Forty-three of the loans have an outstanding balance of $15 million or less and are backed by community centers, strip malls and other, small assets. The massive bankruptcies among big-box tenants like Circuit City Stores Inc., which closed its doors for good on March 8, are also taking a toll. Single-tenant stores abandoned by bankrupt retailers accounted for eight of the delinquencies. “With few retailers seeking to expand their current store base, Fitch expects that many vacant big-box spaces, both stand-alone and components of larger centers, will remain empty for the foreseeable future,” the ratings agency noted in a statement accompanying its report.All told, the retail delinquencies bumped up Fitch’s CMBS loan-delinquency index 13 basis points to 1.3 percent. The index encompasses 44,000 rated loans valued at $483 billion. Of those, 1,164 loans totaling $6.2 billion are delinquent. At $1.7 billion, retail delinquencies are second to the $2.4 billion in delinquent CMBS multi-family loans. Office loans valued at $787 million are also delinquent, along with $665 million worth of hotel loans.Though only 1.2 percent of retail loans are delinquent, that amount will rise steadily and add significantly to CMBS loan delinquencies. “As retail landlords struggle with increasing vacancies at existing centers, they must cope with new market realities, including a deceleration in new store openings, an overhang of new supply and continued downward pressure on rents demanded by those tenants still in operation,” said Fitch managing director Susan Merrick, head of the company’s CMBS group for the United States. The ratings agency projects that loan defaults for all property types will hit at least 3 percent by the end of the year.