Fitch Ratings sees 2010 commercial mortgage defaults rising; loans from 2007 biggest problem
By APWednesday, April 21, 2010
Fitch: Commercial mortgage defaults to keep rising
NEW YORK — Defaults on the loans behind U.S. commercial mortgage backed securities will continue to rise through the year, Fitch Ratings said Wednesday.
The agency expects the overall rate of default for deals it has rated to exceed 11 percent by year-end.
That spike would follow a more than fivefold increase in loan defaults last year, to 1,464 loans totaling $17.75 billion, with 34 percent of defaults happening in the last three months of the year.
“Fourth-quarter default rates reached their highest ever levels both in principal balance and number of loans with no clear signs of stabilization,” said Fitch Managing Director Mary MacNeill.
One big area of concern is large loan defaults. In 2009, 56 loans over $50 million in size defaulted, compared with just five in 2008.
Most of those loans were written between 2006 and 2008, which Fitch said was not surprising. In fact, deals made in 2007 accounted for 35.6 percent of the principal balance of defaulted loans.
“The aggressive underwriting and higher leverage in the 2007 vintage is leading to substantially higher default rates,” said MacNeill. Fitch predicts 10-year cumulative default rates on 2007 Fitch-rated commercial mortgage backed securities to reach 27 percent.
Retail property mortgage defaults had the most new defaults, taking the top spot from multifamily properties for the first time in five years. After those two, office and hotel mortgages followed. Fitch expects “sizable default increases for each property type, with rates likely to increase at accelerated rates for office and hotel loans.”
Office defaults spiked in the fourth quarter, and Senior Director Richard Carlson said that could likely last through next year.
“Larger concentrations of hotel loans in recent vintages will translate to higher defaults, particularly among luxury properties, resort destinations and those hotels heavily reliant on group and convention business,” said Carlson.
