CMBS Delinquencies Spike

Economic Update - CMBS Delinquencies Spike
Jul 14, 2009
By: Dees Stribling, Contributing Editor, Commercial Property News

U.S. Commercial mortgage-backed securities delinquencies grew in June by a record $2.2 billion, according to Fitch Ratings. Last month there was a 2.6 percent delinquency rate among U.S. CMBS, up 48 basis points from the previous month. In June, at least, problems in retail properties and the hospitality industry inspired much of the upward bounce in delinquencies. But there's more to come, especially in the beleaguered hotel sector.

Fitch said that two loans associated with mall properties owned by bankrupt REIT General Growth Properties Inc. defaulted: a $207.2 million loan tied to Woodbridge Center, and the $164.5 million Jordan Creek loan. As for the ailing hotel business, some 13 hotel loans totaling $596 million defaulted in June, according to Fitch.
"The newly defaulted hotels and the two new GGP loans which are not paying amortization represented almost half of the increase in the index,” Susan Merrick, managing director, Fitch Ratings, told CPN.

The struggling hotel sector looks especially worrisome. "Hotels represented 27 percent of the newly defaulted loans in June," Merrick continued. "This same is expected for July as over $600 million of hotel loans are already 30 days delinquent.”

CMBS problems are hardly confined to the United States, either. Fitch Ratings also said on Monday that 53 percent of loans underlying Japanese CMBS are in default. Japanese commercial real estate is facing a similar set of problems as American CRE: a trickle of financing and a weak economy all around.

Bloomberg, citing filings with the Security and Exchange Commission, has reported that Apollo Global Management L.L.C. plans to raise $600 million in a public offering of shares in its commercial property investment fund, Apollo Commercial Real Estate Finance Inc. The fund will be in the market for the sort of properties that owners really need to sell. That is, properties that can't be refinanced, and out of the $1 trillion-plus in commercial real estate loans maturing in the next three years, there are bound to be some of those.

The National Retail Federation lashed out at Wal-Mart on Monday for the retail giant's recent call for employer-mandated health insurance. (Wal-Mart is not a member of the organization.) Essentially, the NRF said, retailers can't afford it without shedding a lot of jobs.

"Employer mandates of any kind amount to a tax on jobs," Steve Pfister, NRF senior vice president for government relations, said in a statement. "We cannot afford to have new and existing jobs priced out of our collective reach because of mandated health coverage."

Apparently, the telegenic analyst Meredith Whitney helped move Wall Street in a positive direction on Monday with a "buy" recommendation for Goldman Sachs. Its shares and other financial stocks moved upward, helping push the Dow Jones Industrial Average up 185.16 points, or 2.27 percent. The S&P 500 rose 2.49 percent and the Nasdaq gained 2.12 percent.