NEW YORK CITY-Even as the future for newly issued CMBS looksbright, the fallout from legacy securities continuespiling up. Trepp says the CMBS delinquency rate is now the highestever, while Real Capital Analytics reports that CMBS loans haveaccounted for a majority of newly distressed situations thus farthis year.

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“To date in 2010, loans serving as collateral for CMBS issueshave accounted for 72% of the newly distressed situations, sharplyup from 40% in 2009 and 23% in 2008,” according to RCA in itsmonthly “US Capital Trends” report. While pointing out that it’stoo soon to tell whether the worst is opver for banks, “it doesappear that CMBS loans are likely to be more problematic thannon-CMBS loans going forward.”

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RCA notes that lenders have stepped up the pace of workouts inthe past several weeks. As of the end of February, lenders hadresolved $14.7 billion in distressed situations, while new distresswas $13.7 billion for the first two months of the year. That theresolution of distress was greater than new inflows was “asignificant milestone,” RCA says, but the tally makes “just a smalldent” in the $157 billion of troubled situations.

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

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The CMBS information provider says that 40 of those basis pointscame from a single situation: the Peter Cooper Village/StuyvesantTown loan, on which foreclosureproceedings began in late February. “Even aftersubtracting out the Stuyvesant Town impact, delinquencies werestill up over 49 basis points,” reaching more than 7%, according toTrepp. The percentage of loans that are “seriously delinquent”—i.e.60-plus days past due, in foreclosure, REO, or non-performingballoons—reached a devilish 6.66%.

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“After February’s numbers showed delinquencies beginning tomoderate, there was some guarded optimism,” says Trepp. “February'sincrease had been the smallest bump in nine months. March datathrew cold water on any notion that CMBS delinquencies might benearing their peak.”

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Providing further evidence, Fitch Ratings said in late Marchthat within the next 30 days, it plans to resolve possibledowngrades on $25.5 billion off a total of $27 billion worth offloating-rate CMBS transactions. “The assets in these transactionsare generally transitional in nature,” Mary MacNeill, managingdirector at Fitch, said in a March 26 release. “Many of the loanswere underwritten with pro forma income assumptions that have notmaterialized as expected.”

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The agency put about $20 billion of the bonds in thesetransactions on rating watch negative in December; the rest wereput on watch before then. Similarly, Moody’s Investors Services inlate March placed a total of 81 classes of CMBS on review forpossible downgrade.

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Paul Bubny

Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.