GGP Corrections Stem Climb in CMBS Overdues

Although U.S. CMBS delinquencies held steady at 3% this past month, Fitch Ratings’ latest Loan Delinquency Index reveals an increase of 18 basis points after adjusting for standardization in servicer reporting.

According to Fitch, the adjustment consisted of the loan status reclassification of six large loans sponsored by Chicago-based General Growth Properties totaling $819 million.

“While the delinquency rate remained unchanged in August, it does not reflect a sign of broader recovery in commercial real estate fundamentals,” said Fitch managing director and U.S. CMBS group head Susan Merrick. “Several large imminent defaults in the pipeline, including $668 million in hotel loans tied to the gaming industry and three additional loans above $100 million that are 30 days delinquent, suggest that performance deterioration will continue.” The now-current GGP concentration corresponds to loans whose special purpose entity borrowers filed for bankruptcy as part of the parent company’s reorganization that began in April of this year. With cash collateral orders now in place, several servicers in August reclassified the affected loans as current due to their adherence to the court-imposed modified loan terms.

In addition to the GGP loan corrections, three Red Roof Inn portfolio notes totaling $294 million reverted to 30-day delinquency (from 60 days), removing them from August’s index. According to the special servicer, the change in status on the Red Roof Inn loans occurred because two debt service payments have been made from funds collected following the occurrence of the cash trap event.

The most significant of the $1.7 billion of new defaults in August was the $195 million Babcock and Brown FX 3 Portfolio loan, secured by 14 cross-collateralized and cross-defaulted multifamily properties located in several markets across six states.

The Babcock and Brown portfolio loan corresponds to the CSMC 2006-C4 transaction, which was downgraded by Fitch in anticipation of the default.

The loan now stands as the largest 60-day delinquency in the Fitch-rated universe and, along with 50 additional newly delinquent multifamily loans totaling $220 million, helped to push the delinquency rate for the property type to 5.4%.

Retail loans continued to lead the index with a total dollar balance of $4.3 billion in delinquent loans, compared to $4.8 billion the month prior.

While the delinquency volume for multifamily loans rose 7.3% to $3.7 billion, office loans rose to $2.5 billion, up 9.3% from the previous month. Loans collateralized by hotel properties registered a 12.5% drop for the month, to end at $1.9 billion in delinquencies, while industrial loans ended the month with $587 million in delinquencies.

When ranked by delinquencies within their individual property types, multifamily again led at 5.44%, followed by hotel at 3.8%, retail at 3.2%, industrial at 2.4% and office with 1.7%.

Fitch’s delinquency index includes 1,967 loans totaling $14.2 billion of the Fitch rated universe of approximately 42,000 loans comprising $467 billion that are at least 60 days delinquent or in foreclosure. The index excludes Fitch-rated loans that are 30 to 59 days delinquent, which currently total $3.6 billion, up from $2.7 billion the month prior.

Among the loans that are 30 days past due is a $592 million floating rate piece of the multinote Extended Stay Hotel Portfolio loan, securitized in the Wachovia 2007-ESH transaction. The remaining $3.5 billion of notes within the transaction remained current as of Aug. 31.