Fitch Sharpens Focus on CRE Construction Loans

Citing heightened concerns about the inclusion of construction loans in commercial real estate collateral debt obligations, Derivative Fitch has announced a refinement of its methodology to quantify market risks for such loans.The heightened concerns stem from the current liquidity problems in the U.S. mortgage market, the rating agency said. "The chief areas of focus remain pre-leasing, barriers to entry, absorption, tenant quality, sponsor expertise, the strength and the overall quality of the market, and the remaining time to complete the project," said David Harrison, a Fitch senior director. "However, the new analytical approach provides a means to better differentiate and quantify the relevant risks." Derivative Fitch said it pays "particularly close attention" to cost overruns in assessing a construction loan's default probability. The rating agency, a subsidiary of Fitch Inc., can be found online at http://www.derivativefitch.com.