Hotels Lead CMBS Delinquencies, Says Fitch
Hotel delinquencies are leading defaults within commercial mortgage-backed securities (CMBS), according to October commentary Monday by Fitch Ratings. The largest newly delinquent hotel -- a $587.7m note corresponding to a $4.1bn Extended Stay America portfolio loan -- helped drive US CMBS delinquencies up 54 bps in September to 3.58%. Specially serviced loans represent 7.5% of Fitch's US CMBS portfolio as of Sept. 30, 2009. Performing loans account for 55% of those loans, while non-performing loans make up the remaining 45%. Fitch said specially serviced loans should include an increasing number of performing loans as recent real estate mortgage investment (REMIC) reforms push current borrowers to seek modification. "Fitch expects loan performance to continue to deteriorate," the rating agency said in the report. "Hotels are expected to continue to lead defaults as values continue to decline and borrowers will be unwilling or unable to continue to fund debt service shortfalls. The ongoing economic downturn continues to affect the luxury and resort properties, many of which are securitized in recent vintage CMBS." The projection for continued deterioration in the performance of vintage CMBS arrives in the midst of industry reports that CMBS new issuance is going ahead outside of government support programs like the Term Asset-Backed Securities Loan Facility (TALF). The industry need for TALF, which provides federal loans for the purchase of both legacy and new issue CMBS, is diminished now compared with the program's start, Lisa Pendergast, head of CMBS strategy and risk at global securities and investment banking group Jefferies, told Dow Jones. "While legacy TALF is wildly successful, and helped orchestrate significant stability back to market and spreads tightened, TALF's role has diminished for new issuance," she said. Write to Diana Golobay.