Fitch: More CMBS Maturity-Related Special Servicing Transfers Payoff Quickly

Some investors and master servicers express growing concern about commercial mortgage-backed securities loans transferring to special servicing at or near maturity only for these loans to quickly pay off, reported Fitch Ratings, New York.

Fitch reviewed special servicing transfers through mid-July and noted the number of loans transferred for maturity-related reasons and how quickly those loans paid off as of July remittance dates. Nearly 20 percent of loans transferred to special servicing for maturity-related default paid off within 120 days, and the majority did so within the first 30 days. 

But the ratings firm noted that the limited number of instances of quick loan payoffs–just 54 out of 271 loans–makes it difficult to draw many meaningful conclusions regarding special servicing behavior.

Brian Olasov, executive director of financial services consulting with Carlton Fields, New York, said 2006- and 2007-vintage deals will soon start maturing in large numbers–close to $9 billion a month starting in November. He said Fitch’s analysis “gives us a peek into the future, starting with the high percentage of transferred loans resulting from balloon risk.” 

Fitch observed that 533 loans transferred to special servicing through mid-July. Just over half of those–271 loans–transferred due to imminent maturity default or maturity default. Maturity-related transfers increased to $1.9 billion (151 loans) in the second quarter from $1.4 billion (111 loans) in the first quarter. Fitch also examined how long loans remained with the special servicer prior to payoff. It found that the largest number of these resolutions that quickly paid off–23 loans–took place within 30 days of transfer to special servicer. 

“Although it’s reassuring that many of these transferred loans pay off shortly after the transfer, time to refinancing appears to be lengthening,” Olasov said. “If community and regional banks continue providing takeout financing at the rate of the past year, the upcoming ‘Wall of Maturities’ should be manageable. But if bank regulators squeeze these banks to slow down the growth rate in commercial real estate, there will be a problem.”