Commercial Servicer: Mild Recession Does Little Damage To CMBS Loans.(Brief Article)(Industry Overview)(Statistical Data Included)

As the current recession - or recessionlet, seeing that it is one of the mildest in recent years - runs through its course, the inevitable increase in delinquency rates is occurring. Although it is not clear whether delinquency rates have peaked yet, the good news is that the recession may have bottomed out and delinquencies are likely to go down again after they hit their peak. However, if some unlikely pessimistic prognostications about a "double dip recession" hold true, things may not be so rosy.

Delinquency rates for CMBS transactions in the Standard and Poor's-rated universe advanced to 2.05% in the first quarter from 1.7% at the end of 2001, the rating agency has reported. This is almost double the rate at the same time last year, according to S&P. However, the 20% growth in the delinquency rate for the first quarter is a slowdown from the 35% growth in the prior quarter. As of March 31, the total amount delinquent was $2.28 billion, on a base of $110.6 billion of S&P-rated CMBS transactions.

The lodging sector leads in terms of delinquent loans, accounting for 42% of all delinquent loans for the first quarter, the rating agency finds. On the positive side, delinquency rates in the sector, which peaked at 8.34% in February, had slid down to 7.65% at the end of March. The decline is attributed to a combination of loans being worked out and due to lodging loans that became current after being delinquent for a short period of time following Sept. 11.

However, "While a substantial recovery in operating performance has developed over the last few months, weaker individual properties will continue to experience a difficult competitive environment," the rating agency says. Delinquent loans are concentrated in the "midprice with the food and beverage" segment, which has suffered due to a decline in demand. S&P reports that ...