NEW YORK CITY—Fewer CMBS loans in special servicing are being resolved with a loss, Fitch Ratings said Friday. That's due only in part to the smaller inventory in special servicing compared to years past.
“The proportion of loans resolved for a loss at 53% is at a six-year low and reflects 2015's robust commercial real estate markets from both a value perspective, as well as from a liquidity perspective,” says senior director Karen Trebach. “Average loss severity is expected to rise somewhat in 2016 as the increases in rents, occupancy and property prices seen over the last several years are likely to moderate and as the refinance wall of 2016 and 2017 faces a potentially lower CMBS issuance volume.” Projections for CMBS issuance this year have been revised sharply downward since the end of last year.
Total resolved loans in 2015 fell by both number and dollar amount, by 16.4% and 6.2%, respectively, according to a Fitch report. The largest loan resolved last year, the $3-billion securitization on the Peter Cooper Village/Stuyvesant Town apartment complex in New York City, represented 18.5% of total resolved loans in itself. It experienced no loss. When the Stuy-Town loan is removed from the equation, total resolved loans by balance fell by 23.6% from 2014 levels.
Including Stuy-Town, special servicers resolved $14.8 billion in loans in '15, with just under half experiencing a loss of less than 1.5%, Fitch says. The average loss for all loans resolved was 21.5%, but rises to 26.4% without Stuy-Town, in-line with recent historical averages. Last year, 368 loans with a total unpaid principal balance of $6.9 billion were disposed of for a loss greater than 1.5% compared with 502 loans ($10 billion) in '14, a decrease of nearly 30%.
Also in '15, special servicers corrected or returned 72 loans to the master servicer, about half the level seen the year prior. Of these loans, only 36% in '15 compared with 78% in '14 had some sort of loan term modification, including only six (UPB of $297 million) compared with 21 ($1.7 billion) for which A/B structures, or hope notes, were created.
“Modifications often serve to delay ultimate losses,” according to Fitch's report. “If the B notes are considered as writedowns, the loss severity for the A/B structured loans would be 33.7%.”
Of the major property types, retail CMBS once again posted the highest average loss severity, at 54.4%, in line with '14 when it was 52.1%. Office represented the largest number of resolutions with losses: loans backed by office properties represented $2.6 billion of the $6.9 billion resolved with losses and experienced an average loss severity of 43.9%.
Also again in '15, legacy loans from peak vintages dominated resolutions. Four peak vintage transactions had over $250 million in resolutions, resulting in significant losses.
“While making a dent in the peak vintage special servicing inventory, Fitch remains concerned about REO aging, currently in special servicing,” the report states. “The current REO aging reflects that servicers may be utilizing a value-add strategy for underperforming properties, servicers may be waiting for market conditions to improve and the REO inventory may be adversely selected.”
“The proportion of loans resolved for a loss at 53% is at a six-year low and reflects 2015's robust commercial real estate markets from both a value perspective, as well as from a liquidity perspective,” says senior director Karen Trebach. “Average loss severity is expected to rise somewhat in 2016 as the increases in rents, occupancy and property prices seen over the last several years are likely to moderate and as the refinance wall of 2016 and 2017 faces a potentially lower CMBS issuance volume.” Projections for CMBS issuance this year have been revised sharply downward since the end of last year.
Total resolved loans in 2015 fell by both number and dollar amount, by 16.4% and 6.2%, respectively, according to a Fitch report. The largest loan resolved last year, the $3-billion securitization on the Peter Cooper Village/Stuyvesant Town apartment complex in
Including Stuy-Town, special servicers resolved $14.8 billion in loans in '15, with just under half experiencing a loss of less than 1.5%, Fitch says. The average loss for all loans resolved was 21.5%, but rises to 26.4% without Stuy-Town, in-line with recent historical averages. Last year, 368 loans with a total unpaid principal balance of $6.9 billion were disposed of for a loss greater than 1.5% compared with 502 loans ($10 billion) in '14, a decrease of nearly 30%.
Also in '15, special servicers corrected or returned 72 loans to the master servicer, about half the level seen the year prior. Of these loans, only 36% in '15 compared with 78% in '14 had some sort of loan term modification, including only six (UPB of $297 million) compared with 21 ($1.7 billion) for which A/B structures, or hope notes, were created.
“Modifications often serve to delay ultimate losses,” according to Fitch's report. “If the B notes are considered as writedowns, the loss severity for the A/B structured loans would be 33.7%.”
Of the major property types, retail CMBS once again posted the highest average loss severity, at 54.4%, in line with '14 when it was 52.1%. Office represented the largest number of resolutions with losses: loans backed by office properties represented $2.6 billion of the $6.9 billion resolved with losses and experienced an average loss severity of 43.9%.
Also again in '15, legacy loans from peak vintages dominated resolutions. Four peak vintage transactions had over $250 million in resolutions, resulting in significant losses.
“While making a dent in the peak vintage special servicing inventory, Fitch remains concerned about REO aging, currently in special servicing,” the report states. “The current REO aging reflects that servicers may be utilizing a value-add strategy for underperforming properties, servicers may be waiting for market conditions to improve and the REO inventory may be adversely selected.”
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