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CMBS Performance Improves 3 of Last 4 Months

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The balance of securitized commercial mortgages that are past due has fallen three out of the past four months — though the sector is far from being out of the woods. Hotel loans and mortgages backed by properties in two states have excessively high delinquency rates.

The 30-day delinquency rate on loans included in commercial mortgage-backed securities was 8.064 percent in August. The rate improved from July, when it was 8.432 percent.

But CMBS delinquency is still higher than in August of last year, when the rate was 7.932 percent. However, late payments were on an upward trajectory at that point, and last month’s rate was the lowest of the past 10 months.

Those were some of the findings from the September 2011 Monthly CMBS Delinquency Report from Morningstar Research.

Total unpaid balances on CMBS loans rated by Morningstar were $730.7 billion, lower than the prior month’s $737.1 billion.

Liquidations amounted to 165 loans for $1.3 billion last month. The severity of the liquidations was 47.4 percent.

The unpaid balance of the delinquent loans was $58.9 billion in August. That was down from $62.2 billion in July and $61.4 billion a year earlier.

A decline in delinquent loan balances has occurred in three of the previous four reporting periods, the report said.

The decline from July in delinquent balances was driven by improvements in the 30-day, 90-day and foreclosure categories. The decline would have been larger if not for an increase in the 60-day and real-estate-owned categories.

Morningstar noted that the rate of delinquency was higher on loans seasoned at least a year when excluding agency CMBS deals.

The ratings firm, however, warned that overall CMBS delinquency still has the potential to exceed 9 percent during the rest of this year and next year depending on the credit markets as balloon loans mature.

Hotel loans continue to be an area of concern, with more than a third of such loans on the watchlists of master servicers as of August. Hotel loans account for 15 percent of all CMBS on servicer watchlists.

More than a fifth of all industrial, office and retail loans were also on servicer watchlists.

By geography, states of concern included Florida and Georgia, where 28 percent of CMBS loans were on watchlists. Arizona’s 27 percent, Pennsylvania’s 25 percent and California’s 24 percent were also among the worst states.

The worst metropolitan statistical areas were Philadelphia, where 34 percent of CMBS loans were on watchlists; San Diego’s 34 percent; and Atlanta’s 31 percent.

In January 2008, just $4.5 billion in CMBS loans were in special servicing. The total ballooned to $90.5 billion as of January 2011 and has since fallen to $84.8 billion.

The rate of special servicing has climbed from 1.71 percent in 2009 to last month’s 11.61 percent.

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