Fitch Ratings says a sign for a potential commercial real estate rebound is that fewer troubled conduit loans are now in special servicing. As of June, there were $80.5 billion underperforming loans in special servicing versus the high point of $92 billion in June 2010.
The number of months in special servicing has increased to over 18 months as of June, which Fitch calls “a notable change” from just under 11 months as of June 2010.
There has been a worry about
“After a large number of CMBS loans were worked out last year, special servicers are now grappling with the more challenging assets that will take longer to resolve,” said Fitch managing director Stephanie Petosa. “These loans are usually larger, complicated loans which often are not the best candidates for liquidation.”
In a separate press release, Fitch said there has been a moderate improvement in commercial real estate losses at financial institutions, supporting a “steady but slow asset quality recovery.” As a result the recovery in the commercial real estate market “will not be as financially painful as Fitch had previously expected,” although the return to a normal market could take longer.
Second-quarter net charge-offs at the banks Fitch rates because of CRE was $2.5 billion, down from $3.8 billion in 2Q11.
The cumulative loss figure as a result of the downturn in commercial real estate is just under $70 billion. Should things continue to improve, when all is said and done, this total should remain under the $120 billion to $140 billion in losses that Fitch had projected back in November 2009.
Fitch’s caveat: CRE loss performance could worsen if interest rates spike or if the risk appetite of the traditional sources of CRE funding fades.
