Commercial real estate loans that require special servicing continue to climb with the total volume projected to reach $100bn by the end of 2010. These loans are used as collateral in commercial backed mortgage securitizations (CMBS).
In a special report on commercial mortgages issued Wednesday, Fitch Ratings said there was 5,207 loans worth $92bn in special servicing as of June 30, representing 12% of commercial mortgage-backed securities outstanding.
The ratings agency said CMBS loans transferred out of special servicing occurs with greater frequency than before, but analysts still expect the figures to reach $100bn and 15% by Dec. 31.
"Keeping up with the rapid influx of delinquent loans has been a real struggle for servicers," Fitch managing director Stephanie Petosa said. "While the increase in loans transferring out of special servicing is encouraging, the volume of large transfers must be taken into account, plus only time will tell if the modifications will stick."
The special servicing figures at the end of the first half are up 25% from the 4,435 loans valued at $74bn at the end of 2009 and 475% higher than the previous year end.
More loans -- nearly $20bn -- were moved out of CMBS special servicing during the first half of 2010 than the total value of the loans at the end of 2008 when 2,019 loans worth $16bn received the designation, according to Fitch.
Analysts said defaulted or distressed loans with large balances were apt to be modified during the first half of this year, while loans with smaller balances were more frequently foreclosed or liquidated.
Fitch said 63% of the total dollar volume of specially serviced loans transferred were due to imminent default and the majority of loans transferred as current eventually become delinquent.
Office property accounts for the largest chunk of loans transferred to special servicing as of June 30 at 30.5%, which is up from 17% at the end of 2009, according to the ratings agency. Meanwhile the number of retail loans transferred at June 30 declined to 20% of the overall volume from 32% in December, mostly due to modifications.
Write to Jason Philyaw