Fitch: 3Q CMBS Cumulative Defaults Fall, Maturity Defaults Rise

Third-quarter commercial mortgage-backed securities loan defaults fell slightly last quarter on the whole, but maturity defaults rose, reported Fitch Ratings, New York. 

Fitch noted a decline in loans defaulting during their term in 3Q’16 compared to 3Q’15. “However, loans that defaulted at maturity increased during these same time periods,” the ratings agency said. 

In the third quarter, 39 loans totaling $387 million newly defaulted during their loan term, compared to 38 loans totaling $779.1 million that defaulted in third-quarter 2015. But 92 loans with an original securitized loan balance of $1.75 billion did not refinance at maturity during the quarter compared to 83 loans totaling $943.8 million that did not refinance at maturity in third-quarter 2015, Fitch said.   

“Retail properties were the largest contributor to new third-quarter defaults by loan balance,” Fitch said, noting that 20 retail loans comprised nearly 40 percent of third-quarter defaults. Office properties represented the second-largest default contributor with five loans at 32 percent. In addition, seven multifamily loans defaulted, comprising 15 percent of total third-quarter defaults, and four industrial loans defaulted representing 10 percent of total defaults. Just three hotel defaults made up the remaining 5 percent.   

Trepp, New York, found slightly increased CMBS loan dispositions in October as 2016’s final quarter kicked off. “Overall activity was highlighted by several large office liquidations backed by properties located on the east and west coast,” Trepp’s Loss Analysis report said. 

The large liquidations included the $174 million LNR Warner Center I, II & III note, secured by an 808,000-square-foot office park in Woodland Hills, Calif. Trepp reported it was written off with a sub-2 percent loss, driving the loss severity for all loans below the 40 percent mark for the first time since May. 

Other noteworthy office loans that took considerable losses in October included the $121.2 million Two Gateway loan (36.9 percent loss severity) and the $24.4 million One Centennial Plaza (80.3 percent loss severity), Trepp said. New Jersey office complexes backed both loans. Closing out with a 108.6 percent loss, the $73.3 million One HSBC Center represented the highest realized loss amount for the month, Trepp said. The loan went into default after HSBC vacated the namesake building in 2013. 

October’s average CMBS loan size also climbed to its highest level since January at $15.5 million, Trepp said.