As fewer US CMBS loans are resolved due to major declines of inventory in special servicing, the proportion of loans resolved with losses has also hit a six-year low, according to a new report from Fitch Ratings.
There were 691 loans resolved in 2015, down from 827 in 2014 and a whopping high of 1,620 in 2010. Meanwhile, the proportion of loans resolved with losses declined to 53 percent after peaking at 60.9 percent in 2012 and hitting a previous low (39.2 percent) back in 2009.
Average loss severities, however, were steady year-over-year, rising only slightly to 45.7 percent from 44.8 percent in 2014, in line with the historical average at 46.6 percent,
Trebach expects that to “rise somewhat in 2016 as the increases in rents, occupancy and property prices seen over the last several years are likely to moderate as the refinance wall of 2016 and 2017 faces a potentially lower CMBS issuance volume.”
Overall loss severity for all loans resolved during the year was 21.5 percent, or 26.4 percent when excluding the large Stuyvesant Town loan resolution which experienced no loss, putting the figure in line with recent historical averages.
Of the major property types, retail once again had the highest average loss severity, at 54.4 percent, in line with 2014’s 52.1 percent. But office represented the largest amount of resolutions with losses, representing $2.6 billion of the $6.9 billion resolved with losses and experiencing an average loss severity of 43.9 percent.
Legacy loans from peak vintages dominated resolutions, with four of them experiencing over $250 million in resolutions. That included CD 2007-CD4 (29 loans, $812.5 million resolved with losses and average loss severity of 67.6 percent), GCCFC 2007-GG9 (15 loans, $802.2 million, 32.6 percent), JPMCC 2006-LDP7 (10 loans, $389.6 million, 33.8 percent), and MSC 2007-IQ16 (16 loans, $256.1 million, 34.9 percent).
“While making a dent in the peak vintage special servicing inventory, Fitch remains concerned about REO aging, currently in special servicing,” according to Fitch. “The current REO aging reflects that servicers may be utilizing a value-add strategy for underperforming properties, servicers may be waiting for market conditions to improve, and the REO inventory may be adversely selected.”