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Properties Underlying Distressed CMBS Struggle to Recover Value

Property valuations for specially serviced U.S. commercial mortgage-backed securities have dipped, according to Fitch Ratings.

The values of properties underlying 495 loans in Fitch’s realm dropped 0.5% versus a 1.5% gain noted in the previous period. More than half of the loans studied reported a drop in appraised value from their previous appraisal.

Retail led the property valuation declines, reporting a 3.6% drop. And retail loans with a securitized balance greater than $40 million experienced a 13.3% slump.

"Appraised values on seasoned assets still in special servicing have continued to fall in value despite generally rising commercial real estate market valuations as they tend to become obsolete or otherwise noncompetitive," Fitch wrote.

Fitch did note that assets held for more than four years in special servicing had increased 0.9% in property value. But the ratings agency cautioned that the servicer advances and expenses associated with those loans could outweigh the higher valuation.

A spokesman for Fitch said that the property valuations were typically performed by an MAI appraiser and ordered by the loan's servicer.

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