Fitch Sees CMBS Defaults Rising This Year

Loan defaults will continue to escalate for United States commercial mortgage-backed securities, with the overall rate to exceed 11% among Fitch-rated deals by the end of the year, according to Fitch Ratings. New CMBS loan defaults increased more than five-fold last year (1,464 conduit loans totaling $17.75 billion), with 34% taking place in the fourth quarter alone. "Fourth-quarter default rates reached their highest ever levels both in principal balance and number of loans with no clear signs of stabilization," said managing director Mary MacNeill. In fact, 2009 defaults on their own surpassed the cumulative number from the inception of the CMBS market through 2008 ($17.74 billion). Another area of concern is large loan defaults, which increased dramatically last year. In 2009, 56 loans over $50 million in size defaulted compared to just five in 2008. Not surprisingly, most of the defaulted loans came from 2006-2008 vintages. Retail was the property type with the most new defaults at 32.3% last year. It was followed by former category leader multifamily at 22.1% new defaults, office (20.2%) and hotel (17.8%). Fitch projects sizeable default increases for each property type, with rates likely to increase at accelerated rates for office and hotel loans. "Office defaults spiked in the fourth quarter last year, with further rental and net operating income declines likely through next year before a rebound takes place," said senior director Richard Carlson. "Larger concentrations of hotel loans in recent vintages will translate to higher defaults, particularly among luxury properties, resort destinations and those hotels heavily reliant on group and convention business."