Derivative Fitch said today that U.S. commercial real estate loan (CREL) CDO delinquencies rose in December 2007, with increased loan extensions and modifications expected as liquidity in the CDO market has disappeared.
A little explanation may be in order here, given that an earlier report said Fitch believes concerns over commercial real estate have unfairly hit the CMBS market. HW readers will want to review an earlier discussion of mezzanine financing. CREL CDOs are typically backed by floating-rate loans (typical in mezzanine debt), whereas CMBS collateral is backed by first-mortgage loans. But like any CDO, CREL CDOs are often loaded up with a hodge-podge of collateral -- including even various CMBS bonds. (Particularly mezzanine and equity-level stuff, of course.)
Though Fitch warned that the relatively small universe of loans makes trending difficult, December saw US CREL CDOs record a 0.47 percent loan delinquency rate (excluding repurchases), compared to 0.15 percent one month earlier. That's more than a three-fold increase in one month. Loan delinquencies consist of loans that are 60 days or greater delinquent, including performing matured balloons. When accounting for repurchases, the December 2007 CREL CDO loan delinquency rate was 0.64 percent, Fitch said. Although the overall delinquency rate for CRE CDOs remains low, it is double the rate of the U.S. CMBS loan delinquency rate of 0.31 percent for November 2007. Derivative Fitch currently rates 35 CREL CDOs encompassing nearly 1,100 loans with a balance of $23.6 billion. For more information, visit