Commercial Servicer: Attack Dims Hope for Avoiding an Outright Recession.

An economy that was limping along and barely managing to ward off a recession may likely be pushed into recession as a fallout of the recent terrorist attacks on the country. More and more, economists and researchers (a number of who were previously expecting the economy to shake off its sluggishness toward the end of this year or early next year) are anticipating a brief recession followed by a rebound sometime next year. For servicers, the fallout is likely to be an increase in delinquency rates. The hotel sector, which is already beleaguered this year by a drop-off in travel due to the slowing economy, is expected to be especially vulnerable to delinquencies as people's travel plans are up in the air.

The rating agency Fitch, for one, anticipates rising loan delinquencies, as the events of Sept. 11 "hasten the economic downturn Fitch has expected." While Fitch expects higher vacancies, rising insurance premiums and higher security costs to impact profitability, the rating agency believes that most properties will be able to absorb this stress. And Fitch does not expect a "dramatic spike in defaults" of CMBS bonds that are mostly made up of long-term, fixed-rate mortgages. According to Fitch,"CMBS investors will be protected from bond defaults because the collateral supporting most CMBS multi-borrower transactions are characterized by significant diversity in property type and geographic location. Although many single-borrower transactions do not enjoy the same benefits of property diversity, they may have geographic diversity and typically are lower leverage than loans in multi-borrower transactions."

Fitch expects the hotel and retail sector to lead the rise in delinquencies. Of the hotel industry, Fitch says, "The industry was already experiencing declining revenue per available room for the past five months, and both business and leisure travel will continue to drop due to recession worries and safety concerns." On the positive side, office properties "with evenly distributed credit-worthy tenants and evenly distributed lease rollover for the next few years, will continue to perform well." However, the rating agency expects that delinquencies in the office sector "will rise for those properties with concentrated rolls." And Fitch will also monitor ...