Real Estate Forum - May/June 2009

2012. “Unless credit availability improves, it is likely that a good portion of these loans maturing will seek extensions or be forced to enter default on maturity.”

With more CMBS loans veering into troubled waters, Reis notes that the workload for special servicers has increased, a point driven home by two reports recently issued by Fitch. The dollar balance of specially serviced CMBS loans rose by 48% during the first quarter of this year from year-end 2008 to $23.7 billion—and 515% from the end of 2007.

“The recent bankruptcy filing of General Growth Properties and inclusion of over 150 properties in the filing is expected to contribute to record volume of specially serviced loans in the second quarter,” says Fitch senior director Adam Fox in a release. Q1 alone saw 474 CMBS loans with a total balance of $5.1 billion transferred to special servicing, according to Fitch. Multifamily loans made up 29.6% of the Q1 transfers by outstanding balance, followed by retail and office properties at 24.1% and 16%, respectively.

In a report titled “Rising Tide of Special Servicing: $24 Billion and Counting,” Fitch managing director Stephanie Petosa writes that the increase in servicing “raises the question of servicer preparedness. Fitch is concerned that the rapid rise in specially serviced loans will affect special and master servicers’ ability to address loan level issues with the quality CMBS market participants have come to expect.”

At press time, Fitch had placed 34 of the 473 CMBS deals it tracks “under analysis,” meaning that the firm will be issuing a rating action by mid-June. In late March, Moody’s Investors Service took a rating action of its own, downgrading 496 tranches of CMBS with an aggregate balance of $15.5 billion while affirming its ratings on 358 tranches worth a total of $30.4 billion.—Paul Bubny

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Survey: CRE Hopes
Cautiously Rising

The Real Estate Roundtable Sentiment Survey for Q2 2009 reports that the industry is feeling more hopeful that a recovery is on the horizon, at least compared to the dim view of the future that the Index captured in January. The Sentiment Index registered at 41 for Q2—an increase from the first quarter’s 38 and prior to that, 33 six months ago.

The Washington, DC-based organization’s president and CEO, Jeffrey D. DeBoer, told listeners in a conference call that the findings are reflective of reports from various government quarters that the economic crisis may be lessening. Yet he hastened to add that the situation is still “ dangerous” with conditions having significantly eroded.

DEBOER: “Term Asset-Backed Securities Loan Facility and Public Private Investment Program have caused people to be optimistic about where the industry will be a year from now.”

The wild card has been, and still is, the government’s aggressive plans to strengthen the financial system and rid it of toxic, or legacy, assets. A strong approach would, in theory, bolster confidence; one viewed as consisting of half measures could hasten the downward spiral. At this moment, the industry believes the government is on the right track, DeBoer said.