It’s looking like some heavy weather in the forecast for legacy CMBS: over the next 12 months, $24 billion in securitized CRE loans rated by Fitch Ratings is set to mature. The New York City-based ratings agency said Friday that as much as 41% of the 1,900 fixed-rate conduit loans coming due, or 59% of the total by balance, would be unable to refinance.

Unsurprisingly, the numbers look worse for CMBS loans originated at the height of the market. Fitch says that based on its surveillance methodology, which assumes a debt service coverage ratio of less than 1.25x, 80% of all circa-‘07 loans that mature in the next 12 months would be unable to refinance at maturity. By contrast, just 27% of the seasoned 10-year loans from 2002 will face that quandary.

Not far behind the ’07 loans are those from 2005 and 2006, Fitch says. The agency predicts that among loans that are due to hit maturity over the next year, 57% of those originated in ‘05 and 69% dating from ‘06 will be out of luck when it comes time to refinance.

By property type, hotel CMBS is at greatest risk of default over the next 12 months, despite the lodging sector’s strong recovery in the past two years. Sixty percent of hotel loans, or 78% of the balance of securitized debt in the lodging sector, are at risk.

Next comes the office sector, in which 50% of Fitch-rated loans (64% by balance) run the risk of default. It should be noted, however, that data from Morningstar put office CMBS at the top of the heap in terms of securitized debt on special servicers’ watchlists. About $42 billion, or nearly one-third, of office CMBS is watchlisted, more than any other property type.

In third place in Fitch’s ordering of at-risk CMBS is multifamily. Forty-nine percent of apartment loans, but a considerably larger 73% by balance, are in the danger zone for the next 12 months.

Despite the woes that have bedeviled retail in the past few years—certainly, it’s most immediately vulnerable to lack of consumer confidence and demand—Fitch ranks it as the CMBS sector with the lowest risk of maturity default. Just 32% of retail-backed loans coming due in the next year (44% by loan balance) are likely to fail to find refinancing.

Yet this assessment comes with a caveat. “Although retail currently demonstrates better performance amongst the property types, Fitch Ratings remains cautious of retail loan performance due to risks of tenant lease rollovers, recent store closures and big box tenant exposures, as well as the gap between current rents and those underwritten at the peak of the market,” according to the ratings agency’s most recent CMBS Newsletter.

Fitch has similar concerns for office. “Not surprisingly, the failure rate for Fitch Ratings’ refinance test for office loans located in primary MSAs is significantly lower than that for loans located in secondary or tertiary markets (28%, compared to 68%),” according to the newsletter. As for multifamily, the majority of the potential maturity defaults can be found in “troubled or overbuilt states,” including Texas, Florida, Ohio, Michigan and Nevada.

Last week’s GlobeSt.com webinar, “Understand CMBS Restructuring,” provided a detailed primer on the options available for borrowers faced with looming maturities. The first of a three-part webinar series sponsored by R.W. Kline Cos., it’s available for free replays by clicking here.

(Visit the Distressed Assets page on GlobeSt.com.)

Instant Insights /

A Trying 12 Months Ahead for Maturing CMBS

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