NEW YORK CITY—It's a confluence of positive trends in CMBS. Along with increased issuance, there are a continuing decline in the delinquency rate and fewer loans transferring to special servicing. Fitch Ratings expects the latter trend in particular to continue into 2016.

Through October of this year, the ratings agency saw $4.3 billion of Fitch-rated CMBS transactions head to the special servicer's. That's on pace to come in well below the $6.8 billion that transferred in both 2014 and 2013.

Along with the dollar volume, the average loan size going into special servicing has also trended downward. Through mid-October, the average size of the 383 CMBS loans transferring into special servicing was $11.3 million, with the majority under $10 million, as had been the trend the past two years.

Only seven loans greater than $75 million have transferred into special servicing through mid-October. That compares to 18 loans of more than $75 million that transferred in the prior year.

By property type, office and retail CMBS continue to lead transfers into special servicing, continuing a trend we have seen over the past several years. Transfers in the retail sector account for approximately 36% of the overall balance transferred by dollar volume, and about 45% by number of loans.

Fitch expects the volume of specially serviced loans to continue to decline in the coming year, particularly for REO assets, as the pace of resolutions exceeds new transfers into special servicing. "Continued strong market liquidity for commercial real estate assets coupled with low interest rates and increasing property values have created ideal conditions for special servicers to liquidate stabilized assets," according to Fitch. "These same conditions continue to contribute to lower maturity defaults, resulting in less loans coming into special servicing."

Looking ahead, Fitch predicts that special servicers will have excess capacity as the ratio of assets to asset manager declines. That being said, don't expect mass layoffs: "special servicers will remain appropriately staffed as many will shift emphasis to surveillance, including maturing loans from 2006 and 2007 vintages," according to Fitch.

If office comes in second only to retail in terms of loans transferring to special servicing, then resolutions in office CMBS propelled another decline in the October delinquency rate overall, Fitch said earlier this month. The large drop in the office rate was driven by $496 million in resolutions exceeding $306 million of new delinquencies in office.

Overall, loan delinquencies fell nine basis points in October to 4.37% from 4.46% a month earlier. The dollar balance of late-pays fell $348 million to $16.4 billion from $16.8 billion in September.

In common with Trepp LLC, Fitch is predicting a big drop in the delinquency rate with the resolution of a single loan: the $3-billion deal backed by the Peter Cooper Village/Stuyvesant Town apartment complex in Manhattan, which the Blackstone Group and Ivanhoe Cambridge have agreed to acquire for $5.3 billion. When that loan is resolved, multifamily will have the distinction of the least-delinquent among the major property types.

Instant Insights /

Fewer CMBS Deals Head to Special Servicing

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