Delinquencies for securities backed by commercial real estate loans fell in July for the third consecutive month, according to Fitch Ratings. The ratings agency’s index of commercial real estate collateralized debt obligations registered a decline in delinquencies to 11.8% last month from 12.6% in June, as the number of assets removed from the index, due largely to improved credit quality, outweighed the number of delinquencies added. The improvements in the 14 formerly delinquent assets that were removed from the index could prove fleeting, though, according to Fitch Director Stacey McGovern. “Some loans that were brought current or extended may resurface and cause CRE CDO delinquencies to rise if these workouts prove to only postpone an inevitable default,” she said. The assets removed from the index included securities that were modified or extended, defaults or impaired commercial mortgage-backed securities either paid off or restructured and brought current, assets sold or paid off at a discount, and a foreclosed asset that resulted in a 100% loss. Asset managers reported 12 new delinquent assets last month, including nine newly impaired CMBS. Separately, CMBS loan payoffs fell last month, according to Trepp, with about 40% of CMBS loans paying off on their scheduled balloon dates, a decline from 42.4% in June. In July, all but two of the 33 CREL CDOs rated by Fitch reported delinquencies, ranging from 0.8% to 50.2%. Managers of these assets reported about $31 million in realized losses. “The highest loss was related to the discounted sale of a participation in a loan secured by a recently constructed hotel in Atlantic City, N.J.,” Fitch said in its report. “The remaining portion of the loan remains in the CDO.” Office properties represent the largest property type in the index, but have the lowest delinquency rate. Properties with little to no cash flow, such as land, construction, or condominium conversions, have the highest delinquency rates, according to Fitch. Write to Liz Enochs.
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