looks bright,

"To date in 2010, loans serving as collateral for CMBS issues have accounted for 72% of the newly distressed situations, sharply up from 40% in 2009 and 23% in 2008," according to RCA in its monthly "US Capital Trends" report. While pointing out that it's too soon to tell whether the worst is opver for banks, "it does appear that CMBS loans are likely to be more problematic than non-CMBS loans going forward."

RCA notes that lenders have stepped up the pace of workouts in the past several weeks. As of the end of February, lenders had resolved $14.7 billion in distressed situations, while new distress was $13.7 billion for the first two months of the year. That the resolution of distress was greater than new inflows was "a significant milestone," RCA says, but the tally makes "just a small dent" in the $157 billion of troubled situations.

Indications are that new inflows of distress will keep coming in. According to Trepp, CMBS delinquencies reached 7.61% as of March, an increase of 89 basis points over the preceding month and the highest rate seen to date.

The CMBS information provider says that 40 of those basis points came from a single situation: the Peter Cooper Village/Stuyvesant Town loan, on which foreclosure proceedings began in late February. "Even after subtracting out the Stuyvesant Town impact, delinquencies were still up over 49 basis points," reaching more than 7%, according to Trepp. The percentage of loans that are "seriously delinquent"—i.e. 60-plus days past due, in foreclosure, REO, or non-performing balloons—reached a devilish 6.66%.

"After February's numbers showed delinquencies beginning to moderate, there was some guarded optimism," says Trepp. "February's increase had been the smallest bump in nine months. March data threw cold water on any notion that CMBS delinquencies might be nearing their peak."

Providing further evidence, Fitch Ratings said in late March that within the next 30 days, it plans to resolve possible downgrades on $25.5 billion off a total of $27 billion worth of floating-rate CMBS transactions. "The assets in these transactions are generally transitional in nature," Mary MacNeill, managing director at Fitch, said in a March 26 release. "Many of the loans were underwritten with pro forma income assumptions that have not materialized as expected."

The agency put about $20 billion of the bonds in these transactions on rating watch negative in December; the rest were put on watch before then. Similarly, Moody's Investors Services in late March placed a total of 81 classes of CMBS on review for possible downgrade.

Instant Insights /

Legacy CMBS Troubles Keep Piling Up

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