WORLD PROPERTY CHANNEL ®

(NEW YORK, NY) -- The projected cash streams from numerous commercial projects in the U.S. in 2007 and 2008 is not happening, causing developers and owners to continue defaulting  on loans, according to Fitch Ratings.

The New York City-based agency says large loan  defaults,  coupled  with declining performance on multifamily and retail properties,  resulted in a 29  basis  point (bp) climb to 2.07% for U.S. CMBS delinquencies in May.
  
This marks the  highest  percentage of delinquencies since Fitch began its Index in 2001.

"Defaults  on  larger  loans  continue  to  drive  delinquency increases because  later vintage transactions have larger loans, many underwritten with  now  unrealized  proforma  income,  as  well  as now-depleted debt service  reserves  and  high  leverage,' says Fitch Managing Director and   U.S. CMBS group head Susan Merrick.

Fitch's  Loan Delinquency Index now includes 19 loans or crossed portfolios  with  balances of $50 million or greater. Eight are over $100 million.

By comparison, in May 2008, only two loans had a balance over $50 million.

Of the loans greater than $50 million, eight  are  etail properties, seven are multifamily and six are hotels.

Two of  the  largest  10  delinquent  loans  were  newly  added in May: The $160 million Mansions Multifamily Portfolio consisting of four cross-collateralized and cross-defaulted  loans, and the $86 million Arizona Retail Portfolio, both of which  are  in  2007  vintage    transactions.
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Fitch's Merrick says "declining  performance, particularly in oversupplied markets, as well as in   secondary   and   tertiary  markets,  has  pushed  the  multifamily delinquency   rate   to  4.55%,  the  highest  of  all  property  types.

"Multifamily  properties  have been highly susceptible to default in CMBS during the current economic downturn."
 
However, Merrick says loans  backed  by  hotels "have thus far withstood economic pressures and continue to slightly outperform the Index with a 1.91% delinquency rate.

"Possible  reasons  for  the  relative  resilience include generally more sophisticated  sponsorship and management teams; slightly lower leverage and  shorter  amortization  schedules  at  issuance; and a reporting lag whereby  many  year-end  audited financials have not yet been finalized."
   
But Fitch expects that as occupancy rates and revenues per  available  room  (RevPAR)  continue  to decline, 'they will put additional stress on borrowers' operating margins, defaults   could rise precipitously.'

Fitch  currently tracks $991 million of delinquent hotel loans. An additional  $508 million of loans were 30 days delinquent at month's end.

Additionally,  $399  million  were  performing  but  had transferred  to  the special servicer because they were expected to be in default shortly, Fitch says.

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