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Commercial Real Estate Lending Still Falling as CMBS Delinquencies Rise

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The availability of credit to the commercial real estate sector is continuing to decrease as the rate at which commercial mortgage-backed securities (CMBS) fall behind on payments hit another new high in April. In a report released by Fitch Ratings today, CMBS delinquencies climbed 34 basis points to 7.48%, a record high. The report notes the rate of default is slowing, and the highest concentrations of delinquencies are in Sun Belt and Rust Belt states. Further, Fitch expects delinquencies to continue to rise, but not specific to any one type of collateral. The credit agency gives the following break-down of delinquencies: Hotel: 18.42%; Multifamily: 13.60%; Retail: 5.83%; Industrial: 4.60%; Office: 3.97%. Fitch maintains Stable or Positive Rating Outlooks on 75% of its US CMBS portfolio as the market begins to open up. For example, a $840m multi-borrower CMBS will likely hit the market shortly from JP Morgan (JPM). However, analysts from Barclays Capital say they have yet to see any signs of a rebound in bank lending for commercial real state and access to liquidity continues to restrict. Net lending activity is down $128bn, or 7.5%, from peak levels in late 2008 as of late April, according to their chart on lending activity below: The analysts added that the rate of credit worsening is also slowing. The ability of maturing loans to pay off on or close to their maturity dates showed mixed results in April. And a sharp rise in liquidation activity was observed this month, while loss severity dipped slightly. In its Q110 earnings report, Well Fargo said its non-performing assets in commercial real estate is realizing losses and reiterated the 'Pretend and Extend' strategy. "We expect NPAs to continue to increase gradually and peak before year end," the report reads. "The peak in NPAs should lag the credit loss peak, reflecting an environment where retaining these assets is our most viable economic option and the best way to help borrowers recover financially." Write to Jacob Gaffney. The author holds no relevant investments.

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