WORLD PROPERTY CHANNEL ®

(NEW YORK, NY) -- The commercial mortgage-backed securities picture in the U.S. continues to look dim.

Job losses and subsequent office loan defaults, coupled with continued hotel underperformance, resulted in another  monthly  increase  in U.S. CMBS delinquencies, according to the  latest index results from Fitch Ratings.

U.S.  CMBS  late-pays rose again in October, up 28 basis points (bps) to 3.86%. The office sector had the highest increase in delinquencies since September;  with 19.4% additional delinquencies followed by hotels, with a 16.5% increase.

Delinquency rates for all major property types are as follows:

• Office: 2.29%;
• Hotel: 6.81%;
• Retail: 3.55%;
• Multifamily: 6%;
• Industrial: 3.09%.

550 South Hope Street

Fitch finds office delinquencies increased $557.4  million in October  2009.

Contributing  to  the increase were three newly delinquent loans greater than $50 million, the largest of which was a $165 million  loan  in  2007 for the 28-story, 622,000-square-foot,  550 South Hope Street in Downtown Los Angeles.

The loan transferred to the special servicer  in  August  2009 after the borrower, Maguire Properties, stated that it would no longer fund the debt service shortfalls.

Cash flow from  the property has not increased to the banker's underwritten expectations at  issuance  as  lease expirations are not yielding the higher assumed rental rates.

Susan Merrick

'Though longer leases on office properties have historically mitigated sharp changes in  performance, continued  job  losses are expected to increase pressure on the office sector,' says Managing Director and U.S. CMBS  group head, Susan Merrick.

'With the looming possibility of leases expiring  on  space  under-utilized  by  companies  that have downsized, office performance may not reach a trough for a few years'.

However, Merrick adds,  "it should be noted that even with the increase in October, the office sector has the lowest delinquency rate currently at 2.29%."

Hotel delinquencies increased $493.9 million in October. The hotel sector  has  the  highest property type delinquency index at 6.81%, with nine  delinquent  loans  over $100 million.

Red Roof Inn

Newly delinquent hotel loans included three related Red Roof Inns (RRI) loans that had been included in  the  Index  in August. The loans, totaling $292.8 million, became 60 days late after reverting to 30 days in September.

 The largest newly delinquent loan in the index is Riverton Apartments, a $225  million  loan  collateralized  by  a  1,230  unit rent-stabilized, multifamily housing project located in Harlem, NY. 

The loan has been in special  servicing  since  August  2008 after the borrower was unable to convert  rent-stabilized  units  to  deregulated  units  as  quickly  as projected  when the loan was underwritten.  The loan had been using debt service reserves to remain current.

By  dollar  balance,  retail loans continued to lead the index with $4.9 billion  of  delinquent  loans,  stable from September. 

Riverton Apartments - Harlem, NY

The delinquency volume  for multifamily loans rose only slightly to $4 billion from $3.9 billion,  while  hotel loan delinquencies increased from $3 billion last month  to  a  total of $3.5 billion in October. 

Loans collateralized by industrial   properties   ended   the   month   with   $746  million  of delinquencies, a 3.8% month-over-month increase.

The  three  most  recent  vintages  continue to under perform the overall index, with 2006 and 2007 showing dramatic increases in the last quarter of 2009. Recent vintage delinquencies were as follows:

• 2006: 3.95% (from 2.13% in June);
• 2007: 4.28% (from 1.83% in June);
• 2008: 7.82% (from 6.29% in June).

Fitch's delinquency index includes 1,910 loans totaling $17.8 billion of the  Fitch rated  universe of approximately 42,000 loans comprising $463 billion  that  are  at  least  60 days delinquent or in foreclosure.

The Index  excludes  Fitch-rated  loans  that  are 30 to 59 days delinquent,  which  currently  total  $4.1 billion, an increase from $3.0 billion one month prior.  

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