CMBS Loans of Concern Up 7%

The addition of 432 commercial real estate loans totaling approximately $5.2 billion resulted in a 7% increase in U.S. CMBS "loans of concern" between June and last month, according to Fitch Ratings in the latest edition of "What's in Special Servicing." One notable entry is the $227.9 million Resorts International Casino Portfolio loan, which transferred to special servicing in July due to monetary default when the borrower failed to make their July payment citing significant declines in cash flow at the properties. "Properties directly tied to consumer spending such as hotels are the first to exhibit signs of performance declines," said Fitch senior director Adam Fox in a statement. Declining property performance and increasing CMBS defaults within remain the chief contributors to the rising amount of loans of concern. Fitch designated loans with declining performance as a concern because they have a higher probability of future default and current market conditions would result in significantly higher losses if the loans were liquidated in today's market. To date, Fitch has identified more than $80.7 billion in commercial real estate loans (17% of its rated U.S. CMBS portfolio) as having declining performance or defaulted loans. Recent vintage loans account for more than 12% of the $80.7 billion in loans of concern.