Fitch: Higher Interest Shortfalls May Pressure CMBS

Declining commercial real estate fundamentals are likely to induce more interest shortfalls well into next year, according to a new report by Fitch Ratings. According to the report, "'Understanding Interest Shortfalls in CMBS Transactions," Fitch expects CMBS interest shortfalls to increase in size and magnitude through 2010 or until the commercial real estate market recovers. Interest shortfalls occur when fees and expenses associated with troubled loans reduce the amount of interest available to be paid on CMBS bonds. When the interest shortfall takes place, interest is then deferred, with subordinate CMBS classes usually the first to be affected. "The prolonged downturn in commercial real estate increases the possibility that additional bonds will incur interest shortfalls," said Fitch senior director Britt Johnson.