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Smaller-Balance CMBS Loans Have Higher Risk

DEC 6, 2013 3:56pm ET
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Most transfers to special servicing year-to-date in 2013 “have primarily been” in the $10 million and below range, according to Fitch Ratings.

Smaller-balance loans continue to transfer into special servicing indicating their poorer performance compared to larger-size CMBS loans is a trend likely to stay in 2014, analysts noted in a recent report.

The trend was more pronounced in the multifamily property lending marketplace which “saw the biggest swing from 2012 to 2013.”

A higher number of small-size multifamily loans transferred to special servicing in 2013. It increased from 83 loans in 2012 to 104 loans year-to-date in November.

Hence, by balance the 2013 transfers totaled only $576 million compared to $1.4 billion for the same time last year.

In 2013 the number of loans rated by Fitch that transferred into special servicing increased by approximately 100 compared to the same period of 2012, to 647 loans.

These higher-risk small-size loans transferred to special servicing this year, however, appear to be smaller in size leading to a considerably lower dollar volume from $15.8 billion in November 2012 to $7.5 billion so far in 2013.

From that total up to 467 loans were under the $10 million range representing $1.8 billion.

Larger-balance loans are performing much better as only 16 loans with balances over $75 million, which equals $2.2 billion, were high default risk, compared to 39 transfers of loans exceeding $75 million at a $8 billion total, that Fitch reported by this time last year.

By property type office and retail loans were the other weak-performing CMBS that continuetorepresent the greatest transfer volume in both years

Year-to-date in November the number of office loans in special servicing reached to 194 at $2.9 billion up from 191 loans at $5.8 billion by November 2012.

Similarly, 189 retail CMBS loans at $2.1 billion transferred in 2013 compared to 148 loans at $2.7 billion in 2012.

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