The firm says new issues help keep
the CDX in check.
NEW YORK CITY-Newly defaulted office CMBS is the driver of a 30-basis-point increase in the cumulative default rate for conduit securitized loans, Fitch Ratings said Friday. The CDX for the $569 billion of fixed-rate CMBS issued between 1993 and today was 13.5% as of Sept. 30, according to the locally based ratings agency, with office loans comprising $1.4 billion of the $2.2 billion in newly delinquent CMBS during the third quarter and more than 50% of the year-to-date total.
The quarter-over-quarter increase was five bps higher than the uptick between Q1 and Q2 of this year. However, the YTD rise has fallen short of bearing out Fitch’s projections at the start of 2012, when the firm forecast a CDX of 14.5% by year’s end.
Three of the newly delinquent loans in Q3 were greater than $100 million. They included the $678-million loan on One Skyline Tower, a 26-story office tower in Baileys Crossroads, VA secured by BACM 2007-1, JPM 2007-LDP10 and GE 2007-C1; Colony IV Portfolio B, a $171-million office/industrial portfolio in six states securitized via JPM 2006-LDP9; and Koger Center, a St. Petersburg, FL office property backing a $116-million loan through CSMC 2007-C1.
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Modulating the uptick in the CDX for vintage securitized loans is a dramatic increase—percentage-wise, at least—in new CMBS activity. Q3 saw $6.2 billion in new CMBS issues, nearly three times the $2.1 billion of issues that went to market in Q1. “The increase in new CMBS issuance over the last two quarters has helped to stem rising default rates,” Britt Johnson, senior director at Fitch, says in a release.
And the year’s final quarter is on pace to keep the momentum going. In the past couple of weeks alone, Fitch, Standard & Poor’s and Kroll Bond Rating Agency have issued presale reports on more than $4 billion of new securitized issues through institutional lenders, along with a $1.4-billion issue of multifamily pass-through certificates from Freddie Mac. These have ranged from an $835-million single-borrower transaction backed by the 1.86-million-square-foot Fashion Show Mall on the Las Vegas Strip to COMM 2012-CCRE4, a $1.1-billion multi-borrower package of pass-through certificates that represent the beneficial interests in 48 commercial mortgage loans secured by 152 properties.
Given that the CMBS market cratered after the capital markets collapse, its post-crisis growth, while not spectacular, has been steady compared to that seen in the EMEA market, Fitch says in a separate report. The Wall Street Journal reported earlier this month that new private issues could reach $46 billion this year and exceed $60 billion in 2013.
“There are a large number of bad loans and downgraded deals out there, so in some ways it’s a bit of an anomaly that there is still demand from investors to buy new CMBS,” Huxley Somerville, New York City-based managing director of structured finance for Fitch, comments in a Q&A comparing US and EMEA CMBS. “However, yield considerations aside, I believe it’s because investors understand that the lax underwriting of 2006-2008 is no longer occurring and that there is a solid history of performance for transactions that came to market in the decade prior to 2005.” Somerville adds that the performance of circa 2006-2008 deals “is not tainting the market to the extent it does in Europe, where it affected a bigger portion of the overall CMBS market because the CMBS market itself developed over a shorter time period.”