The amount of distressed real estate backing commercial mortgage-backed securities (CMBS) spiked 41% in April, adding $12.8bn of troubled loans to the more than $184bn total, according to a report from Real Capital Analytics. The April increase is the highest in 2010, and the rate is increasing. The amount of new, distressed commercial loans being measured by the firm for May is already approaching $10bn. Office and hotel sectors drove the increase in April, particularly the Morgan Stanley (MS) default on its $2bn Revel casino and hotel development in Atlantic City, according to Real Capital. The April numbers also reflect the “emerging effects” of changes put in place by the IRS in September 2009, which allowed special servicers more flexibility when restructuring loans in imminent default. “Since borrowers and special servicers can restructure assets that are not yet troubled, more borrowers have been moving to secure modifications before losing control of an asset,” according to the report. “The restructuring pipeline is al- most certain to increase across almost all property types going forward.” As many servicers put more efforts behind restructuring, lenders are repossessing properties into REO status at a slower rate. Lenders conducted $1.3bn of resolutions, or sales out of distress, in April. It’s the lowest level since October 2009. Despite the increase in troubled commercial loans, prices on the origination side increased 1.7% in April, the first monthly increase since January, according to the credit rating agency Moody’s Investors Service: Though there was a gain in April, national prices remain 41.15 beneath the peak in October 2007 but have bounced back 4.7% from the low in October 2009. There was a drop in sales, however. There were 114 repeat sales in April with a total balance of $800m, compared to 127 in March. “Prices have remained choppy since October,” said Moody’s managing director Nick Levidy. “While prices have moved as one would expect at a market bottom, transaction volume has been extremely low, making it difficult to conclude prices have stabilized.” Write to Jon Prior.

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