Commercial Servicer: Increase in CMBS Delinquencies Reflects Attack Fallout.(Brief Article)

One visible fallout of the terrrorist attacks of last Sept. 11 has been an increase in delinquency rates for commercial real estate-backed mortgage loans. And thanks to a slowdown in travel, hotel properties have been especially impacted.

Standard & Poor's reports that as of Dec. 1, the overall CMBS delinquency rate on a base of $107.8 billion of rated CMBS transactions was at 1.72%. For 2002, the rating agency has forecast a CMBS delinquency rate of between 3% and 4%, with lodging and retail delinquencies "expected to be the primary catalyst in driving these rates higher." While lodging conduit loans' delinquency rate is 5.59% in S&P rated transactions as of December (with even "full-service" hotels succumbing), the rating agency expects it to hit 8%-10% by the middle of 2002.

Fitch Ratings has also reported a rise in CMBS delinquencies, led by hotel properties. As per Fitch, delinquencies as of Dec. 31, 2001, rose to 1.11% in Fitch rated transactions, up from 1.03% in November and 0.93% in October 2001. Fitch's estimates are based on loans 60 or more days delinquent, including foreclosed and REO loans. On the positive side, Fitch does not expect the delinquency rate to approach the "almost 7% peak seen in American Council of Life Insurers data from early 1992." Hotel and retail properties account for 52% of all delinquencies, by Fitch's reckoning. Hotel loans which accounted for 15% of total delinquencies as of the third quarter of last year, went up to 24% of delinquencies by the end of December, Fitch reports.

In another post-Sept. 11 development, Fitch is now in the process of establishing criteria for factoring in terrorism- related risk in its CMBS ratings. The rating agency "will deem terrorism risk material in cases in which a major event could have a significant impact on increasing defaults for a property." Fitch would consider at high risk "trophy assets, symbols of America, structures for large gatherings of people, critical infrastructure and critical energy providing structures." Also at high risk would be tall buildings located in densely populated central business districts or those that have "a highly visible tenancy." Fitch expects to incorporate in its ratings both "the probability that the underinsured event could occur and the risk of it happening at that specific asset."

While the inclusion of such terrorism-specific ratings criteria might be ...