The latest Fitch US CMBS loan delinquency index is 0.88% and the index is expected to reach 2% by year's end. Fitch says the December increase was due largely to two loans with outstanding principal balances greater than $100 million, following a November reading which featured two defaults in excess of $70 million. Both loans of $100 million-plus were securitized in early 2008.

The loan delinquency index currently includes 20 loans with a balance of $25 million or more, and six of those loans became newly delinquent in December, according to Fitch. Excluding small balance loans, the average loan size of delinquencies within the Fitch-rated universe now stands at $8.2 million. A year earlier, the average was $6.4 million.

"What began as weakness in the performance of smaller properties located in tertiary markets now includes larger collateral in secondary and primary markets," says Susan Merrick, the New York-based managing director and US CMBS group head, in a release. "Highly levered loans on transitional assets that were originated at the height of the market are proving particularly susceptible to performance default, as the deepening recession continues to make stabilization according to schedule increasingly unlikely."

Earlier this month, Fitch reported that the default rates on fixed-rate CMBS securitized between 2005 and 2007 rose during Q4 '08 and are likely to reach 150 basis points this year. On an annualized basis, Q4 defaults for the '05-'07 CMBS increased to 110 basis points for '05 CMBS, 222 for '06, and 65 for '07.

"If this rate of default were to continue through 2009, in combination with natural aging of the vintages, cumulative defaults would mirror those experienced by similarly seasoned vintages during the 2001 recession," says Merrick in a release. She adds that with the global recession expected to last through much of next year, "commercial loan defaults are likely to rise at pace equal to or exceeding fourth quarter levels."

In a release, Fitch says it expects commercial real estate fundamentals to continue deteriorating in the current recession. Retail properties in particular face continued contraction as the dismal holiday shopping season is followed by what's likely to be decreased consumer spending throughout '09. In addition, Fitch says the office and lodging sectors have negative outlooks as declines in corporate earnings result in further consolidation of office space, and cutbacks in business travel.

"In general, commercial real estate operators will face significant challenges in 2009 to maintain stable cash flow," according to a release. Calls to Fitch for additional comment were not returned by deadline.

Instant Insights /

Fitch: CMBS Delinquencies Keep Rising

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