NEW YORK CITY-One-hundred and twenty-six CMBS loans with abalance of $962 million will come due next month, and 43% of thoseare already in special servicing, says Fitch Ratings. The ratingsagency says special servicers oversee about 25% of the $6.1 billionof Fitch-rated loans that are due to mature by the end of thisyear. Most of these loans are classified as delinquent or inforeclosure.

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While these statistics suggest still more trouble on the way forlegacy CMBS, Moody’s Investors Service said earlier this month thatits Delinquency Tracker Index saw its smallest monthly rise sinceFebruary 2009. The DQT increased 18 basis points in July to7.89%.

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However, Moody’s managing director Nick Levidy says in arelease, “Although the monthly increases in the DQT have trailedoff since March, we do not expect this trend to continue unabatedfor the rest of the year. The fact that the portion of loans inspecial servicing exceeds by over 300 basis points the portion thathave so far actually gone delinquent suggests that there are stillplenty of delinquent loans in-waiting that can cause the rate tospike in any given month.”

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As a case in point, the 43% of loans maturing next month have atotal unpaid balance of approximately $398 million. October’s tallyof loans coming due is considerably larger—about $2.1 billion,according to Fitch—and while only 34% of those loans are in specialservicing, the total balance on those loans is $714 million.

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Looking ahead to next year, Fitch says 2,198 fixed ratecommercial loans, with a total UPB of $26.5 billion, are scheduledto mature. Of those loans, $4.7 billion, or 17.9%, are already inspecial servicing.

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Loans scheduled to mature in 2011 have a weighted average debtservice coverage ratio of 1.70 and an average weighted loan tovalue of 79.3%, Fitch says. One-third of the loans are secured byretail properties, 29.4% by office and 16.4% by multifamily. Theratings agency says it believes loans secured by office, retail andhotel properties are the most challenging to refinance, “with thefeasibility of refinance dependant on the strength of the propertycash flow and overall leverage on the property.”

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By vintage, 34.7% of next year’s maturing loans are from 2001,followed by 33.7% from 2006 and 13.2% from 2007. Partly because theolder-vintage loans have the advantage of a decade’s worth ofamortization and partly because the newer loans carry a higher LTV,Fitch expects higher default rates among the ’06 and ’07 loans. AndRealpoint notes that 83% of the loans that went into specialservicing in July were from more recent vintages.

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Losses from these newer loans may also be more severe. “Weanticipate that the cumulative loss severity rate will continue torise from 35.4% as more loans from the 2006-2008 vintages of CMBSare liquidated at relatively higher loss severities,” says KeithBanhazl, VP and senior analyst at Moody’s, in a release. He cites“lax underwriting standards, the absence of amortization and otherloan structural features, historically low capitalization rates,current reduced market liquidity and the general impact of theeconomic downturn” as factors that likely will cause higher lossseverities.

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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.