NOV 27, 2013 1:27pm ET

CMBS Liquidations and Losses Up, Performance Stalls


October remittance data show 84 securitized commercial mortgage loans with an unpaid principal balance of $1.1 billion were liquidated, according to Morningstar Credit Ratings’ monthly special servicing activity report.

Realized losses on these loans that totaled $387 million represented a 35% loss severity, which were lower than the $441 million, or a 39% loss severity, projected by Morningstar.

The bigger picture however does not indicate major improvements.

Also in October, 72 loans with a UPB of $892 million were transferred to special servicing and another 30 loans with a UPB of $1.1 billion were returned to master servicing, according to Morningstar.

Only four loans with a combined balance of $57 million were modified.

Other data confirm a trend of increased liquidations as asset holders clean their portfolios and manage loan loss risk.

The $1.1 billion liquidated in October stepped the overall volume up from $900 million in September, Barclays analysts note in a report.

The largest liquidation was the Windsor Capital Embassy Suites in GSMS 2006-GG6, a $168 million loan that took a 16% loss, after being sold at a bankruptcy auction.

Other high profile liquidations in October include the $115 million Gwinnett Place (MLMT 07-C1), which is “another high-severity distressed retail property.” Following a reduced value appraisal Gwinnett Place suffered losses of up to 94% losses.

Overall CMBS severities were up to 55% in November, an increase from 44% in October, according to Barclays.

Analysts find the elevated rate of cures and liquidations largely contributed to a 30 basis point decline in the delinquency rate of loans 60 days or more past due.

The 60 days or more delinquency rate for pre-2009 vintage loans continued to fall, declining 20bp in October to 9.1%, marking a continuous decline of 40 bps in the past three months.

Analysts note, however, that the rate of new loans turning delinquent increased 10 bps, so after including new CMBS issuance, the delinquency rate stands at 7.2%.

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