Fitch: U.S. CMBS Loan Losses Steady in 2015
As the inventory in special servicing has fallen, special servicers have accordingly resolved fewer loans in 2015 compared with 2014. But, notably, the proportion of the loans resolved with a loss is lower. 'The proportion of loans resolved for a loss at 53% is at a six-year low and reflects 2015's robust commercial real estate markets from both a value perspective, as well as from a liquidity perspective,' said Senior Director Karen Trebach. 'Average loss severity is expected to rise somewhat in 2016 as the increases in rents, occupancy and property prices seen over the last several years are likely to moderate and as the refinance wall of 2016 and 2017 faces a potentially lower CMBS issuance volume,' Trebach added.
Overall loss severity for all loans resolved during the year is 21.5%, and, when excluding the large Stuyvesant Town loan resolution which experienced no loss, the total loss severity is 26.4% - more in line with recent historical averages.
Again this year, legacy loans from peak vintages dominated resolutions. Four peak vintage transactions had over \\$250 million in resolutions, which resulted in significant losses. While making a dent in the peak vintage special servicing inventory, Fitch remains concerned about REO aging, currently in special servicing. 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.
Of the major property types, retail once again had the highest average loss severity, at 54.4%, in line with 2014 when it was 52.1%. Office represented the largest amount of resolutions with losses; loans backed by office properties were \\$2.6 billion of the \\$6.9 billion resolved with losses and experienced an average loss severity of 43.9%.
'U.S. CMBS Loss Study: 2015' is available at 'www.fitchratings.com' or by clicking on the above link.