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NEW YORK CITY-On the surface, the June rise in CMBS delinquency over May looks especially alarming: the rate appears to have crept past 4% months ahead of the year-end time-frame predicted by Moody’s, and has increased about 175% since last month. But that bulge is due largely to several of the loans associated with the bankruptcy of General Growth Properties, which inflate the tally, according to Trepp. Even so, the locally based provider of CMBS information says the delinquency rate is going to keep ticking upward.

“It’s hard to see anything turning it around, absent the capital markets rebounding,” Manus Clancy, managing director at Trepp, tells GlobeSt.com. He cites eroding fundamentals across the asset classes; for example, in the past few days both CB Richard Ellis and Jones Lang LaSalle have issued reports of increasing Manhattan office vacancies, although CMBS delinquencies in the office sector are still less than 2%. The hospitality sector–which in the past month saw the bankruptcies of Extended Stay Hotels and Red Roof Inn–is being hit especially hard. “The flyaway-destination hotels are getting hammered, in both reality and perception,” Clancy says.

Retail, too, is taking its lumps, accounting for the majority of the top 15 delinquent loans in Trepp’s monthly TreppWire report issued on Wednesday. However, Clancy says the statistical bulge is because GGP makes the delinquency picture appear more dire than it is.

“We don’t think that the data is being handled correctly,” he says. With the bankruptcy court’s ruling last month, the special servicers on the various GGP loans are entitled to take out the loan interest before remitting whatever excess cash remains back to GGP. “So technically, none of these loans should be delinquent unless they have debt service coverage ratios of less than one, yet they’re showing up as delinquent,” Clancy says. “If the servicers figure this out and correct it, next month you could actually see the rate go down.” Without the GGP loans to inflate the numbers, Trepp estimates the delinquencies would be in the mid-3% range–still a significant jump from the low- to mid-2% range reported in May.

No GGP-size collapses are on the immediate horizon in terms of securitized loans, but the past few months have seen “some pretty big stories” including Extended Stay and the Bethany Group. “They all seem to be the same story,” says Clancy. “You have highly-levered borrowers who paid premium prices for paper in 2005 through 2007. I don’t think it would be a stretch to say there will be more people swept down that path. It’s just hard to know who.”

And there are some pretty sizeable single-asset loans with a cloud of uncertainty; Clancy cites the $3-billion securitized loan on the 11,277-unit Peter Cooper Village/Stuyvesant Town multifamily complex in Manhattan. “That’s just hanging over everybody,” he says. To date, however, the loan continues to perform.

Clancy says the prospect of large-scale ratings actions, such as the 1,584 CMBS tranches that Standard & Poor’s placed on CreditWatch Negative last week, is “more of a concern for investors than for borrowers. But lending is so hard to come by now, it seems like the only ones who can get liquidity are the smaller guys.” Ironically, he says, a few years ago it was the large-scale borrowers who were actively sought out by lenders. Now, “they can’t get the size they need.”

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