Servicing
More CMBS land in special servicing as businesses downsize
By Kerri Panchuk

More commercial mortgage-backed securities loans landed in special servicing at the end of 2011, suggesting the CMBS sector is vulnerable to further spikes in distressed mortgages, Fitch Ratings said Friday.

The ratings giant said as more leases expired and retailers consolidated their space, more CMBS could land in special servicing.

By the fourth quarter of 2011, 340 CMBS loans were in special servicing. Sixty five of those loans are worth more than $20 million, Fitch said. That is up from 299 loans in the third quarter, 292 loans in 2Q and 329 loans during the first quarter of 2011.

Fitch noted office and retail loans accounted for the majority of the mortgages moved into special servicing, representing 349 and 379 loans, respectively.

Overall, hotel loans are faring the best after experiencing some of the worst years, but signs of distress are still in the market. Fitch cited the transfer of the Kerzner International Portfolio, a diverse portfolio of real estate that includes the Atlantis Resort and casino on Paradise Island in the Bahamas, the One & Only Ocean Club and the 18-hole Ocean Club Golf Course, the Marina at Atlantis and retail tied to the Marina Village.

The portfolio also includes ongoing construction projects such as the third phase of an expansion in a 495-unit condominium hotel called the Residences at Atlantis in the Bahamas and Kerzner's share of sales proceeds from the Ocean Club Residences & Marina condominium units.

"The recent transfer of the Kerzner portfolio into special servicing will result in a near-term spike for hotel loans, though the sector by and large will continue to perform much better than the last two years," said Mary MacNeill, managing director of Fitch Ratings.

Worries that more CMBS could land in special servicing has not stopped new deals from coming to market.

Moody's Investors Service ($38.77 0%) recently assigned provisional ratings to $1.118 billion in securities backed by CMBS that Goldman Sach's ($114.36 0%) GS Mortgage Securities unit brought to market. The certificates are supported by 80 fixed-rate loans secured by 127 properties.

Write to Kerri Panchuk.

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