Declining property performance and increasing CMBS defaults remain the chief contributors to a sharp increase in the number of troubled loans within the U.S. CMBS market.
The addition of 432 commercial real estate loans totaling approximately $5.2 billion resulted in a 7% increase in U.S. CMBS loans of concern between June and last month, according to Fitch Ratings in its latest edition of What's in Special Servicing. To date, Fitch has identified more than $80.7 billion in commercial real estate loans (17% of its rated U.S. CMBS portfolio) as having declining performance or defaulted loans.
Of these loans, approximately 12% (2,909 loans totaling $56.7 billion) were originated in 2006 and 2007. On average, these vintages contain 13% and 27% of Fitch's loans of concern, respectively.
Fitch's currently rated U.S. CMBS portfolio consists of 464 transactions, with an unpaid principal balance (UPB) of $472.1 billion. As of July 31, Fitch's loan delinquency index, which measures loans 60 days delinquent, in foreclosure, or real estate owned (REO), was 3.04% due to the delinquency of 1,857 loans representing $14.3 billion in UPB.
Fitch expects the number of delinquent loans to increase and reach 5% by year-end given the recent increase of $2 billion in delinquencies and higher rollover rate of 30-day delinquencies to 60-day. Commercial property fundamentals continue to be under stress due to economic factors such as rising unemployment and lack of consumer spending as well loans with low debt service coverages that are close to depleting their reserves.
There are an additional 644 Fitch-rated nondelinquent (current, performing matured, or 30 days late) specially serviced loans totaling $17.1 billion that are currently with the special servicer.
Of the Fitch designated largest loans of concern, 146 loans have outstanding balances greater than $100 million and 736 loans have balances greater than $20 million.
Fitch detailed the 10 largest delinquent specially serviced loans, the 10 largest performing specially serviced loans, and the 10 largest Fitch loans of concern that were with the master servicer as of July 31. The edited list follows. Among the 30 largest loans detailed, 40% (12 loans) were hotel or resort related; retail properties made up 23% (seven loans); and multifamily loans made up 20% (six loans).
The list of 30 included only four office properties. However, all four office loans fell into a category of growing concern. Fitch lumped the office properties in its loans of concern -- those with declining performance as a concern because they have a higher probability of future default. In addition, current market conditions would result in significantly higher losses if the loans were liquidated in today's market.
Largest Delinquent Loans
The following loans are the largest 10 loans in Fitch's loan delinquency index. The index consists of loans 60 days or more delinquent in addition to those characterized as nonperforming matured loans, in foreclosure, or REO. Of these 10 loans, four have experienced an appraisal reduction.
Woodbridge Center, JPMCC 2005-LDP1 (Nonperforming Matured)
The $207.9 million loan is secured by the 556,835-square-foot in-line portion of the Woodbridge Center, a super-regional mall in Woodbridge, N,J totaling 1.64 million square feet. The loan is sponsored by General Growth Properties (GGP) and was included in its April 2009 chapter 11 bankruptcy filing.
Pointe South Mountain Resort, GSMSC II 2006-GG8 (90 Days Delinquent)
The $190 million loan is secured by a 640-room resort hotel property in Phoenix, AZ. The special servicer continues to negotiate possible workout options with the borrower.
Resorts Atlantic City, CSMC 2007-TFL2 (Foreclosure)
The $175 million loan is secured by a 942-room hotel and casino in Atlantic City, NJ. Negotiations between the special servicer and sponsor continue regarding workout options, which include foreclosure and deed-in-lieu of foreclosure. The special servicer is also in the process of interviewing replacement managers for the property.
Jordan Creek Town Center, JPMCC 2005-LDP5 (90 Days)
The $164.8 million loan is secured by a 939,085-square-foot retail property in West Des Moines, IA. The borrower is an entity owned by General Growth Properties.
Mansions Multifamily Portfolio, CSMC 2007-C1 (90 Days)
The $160 million loan is secured by a portfolio of four cross-collateralized and cross-defaulted loans in Austin, TX (two) and Round Rock, TX (two), which comprise a total of 1,417 units. The special servicer continues to work through the bankruptcy court and to pursue other available remedies, including personal recourse. The loans are sponsored by Chowdary Yalamanchilli, who also obtained $20.2 million in mezzanine financing at issuance.
Macon Mall/Burlington Mall, Wachovia 2005-C20 (Foreclosure)
The $136.3 million loan is secured by two cross-collateralized regional malls in Macon, GA and Burlington, NC. The Macon Mall is a 1.4 million-square-foot two-level enclosed super-regional mall, and the Burlington Mall is a 419,000-square-foot one-level enclosed mall. The borrower, Lightstone, indicated it could no longer continue to fund the debt service shortfall and had requested a modification, which was denied by the special servicer.
Bethany 2 Portfolio, MLMT 2007-C1 (90 Days)
The $130.5 million loan is secured by a portfolio of 11 multifamily properties comprising 2,904 units across Georgia, North Carolina, and Virginia. The sponsor of the loan at issuance was The Bethany Group. The special servicer had granted the mezzanine lender an additional time to evaluate whether or not it wants to take control of the borrower.
The Promenade Shops at Dos Lagos, JPMCC 2008-C2 (Foreclosure)
The $125.2 million loan is secured by a 351,179-square-foot lifestyle/entertainment retail center in Corona, CA. Although the sponsor, Poag & McEwen, is focusing on lease renegotiations, tenant retention, and improving sales volume, the special servicer continues to move forward with foreclosure.
Loews Lake Las Vegas, CDCMT 2007-CD4 (60 Days)
The $117 million loan is secured by a 493-room hotel in Henderson, NV. The special servicer continues foreclosure efforts with the borrower's cooperation.
Senior Living Properties Portfolio, GMAC 1998-C1 (Nonperforming Matured)
The $111.8 million loan is secured by a portfolio of health care facilities in Texas. The special servicer recently extended the maturity date again until Feb. 1, 2010.
Largest Performing Specially Serviced Loans
The following loans are with the special servicer but were either reported 30 days delinquent or were paying debt service as of the July 2009 remittance reports.
Extended Stay Portfolio, WBCMT 2007-ESH
The $4.1 billion loan is secured by 664 financed hotels, 17 leased hotels with a pledge of the cash flow, an office building, and a vacant parcel. The special servicer is currently waiting for the debtors to propose their plan of reorganization.
Ala Moana Portfolio, CDCMT 2007-CD4/COBALT 2007-C2/ CGCMT 2007-C6/ COBALT 2006-C1/CGCMT 2006-C5 (30 Days)
The $900 million loan is secured by the fee interest in a 1.9 million-square-foot retail and office development in Honolulu, HI. The loan transferred to special servicing as a result of General Growth's bankruptcy filing.
Red Roof Inn Portfolio, BSCM 2007-PWR 17/BSCM 2007-PWR18/CGCMT 2008-C7/ CD 2007-CD5 (30 Days)
The $361.4 million loan comprises is collateralized by a portfolio of 79 limited service Red Roof Inn hotels with a total of 9,423 rooms in 24 states. The special servicer is currently in the process of analyzing the portfolio and has yet to determine a resolution strategy.
Solana, BACM 2007-1/JPMCC 2007-LDP10
The $360 million Solana loan is backed by 1.79 million square feet of office space, 43,685 square feet of retail, a 38,000-square-foot health club, and a 198-room full-service Marriott hotel in Westlake, TX. The loan is sponsored by Maguire Partners. The special servicer is discussing workout options.
Providence Place Mall, LB-UBS 2005-C5
The $258.5 million loan is secured by a 1.29 million-square-foot four-level super-regional mall in the heart of downtown Providence, RI. The sponsor is General Growth Properties.
Resorts International Casino Portfolio, JPM 2007-FL1 (30 Days)
The $227.9 million loan is secured by a three-hotel/gaming portfolio with properties in Atlantic City, NJ and Robinsonville and Tunica, MS. The loan sponsors are affiliates of Colony Investors.
Riverton Apartments, CDCMT 2007-CD4
The $225 million loan is secured by 12 13-story buildings totaling 1,230 units in the Harlem section of New York City. The mezzanine lender, Realty Finance Corp., recently exercised its right to initiate foreclosure proceedings and may assume control and sell the loan.
Babcock & Brown FX3 Portfolio, CSMC 2006-C4
The $195.1 million loan is secured by 14 cross-collateralized and cross-defaulted multifamily properties in several markets across Nevada, Texas, Maryland, Florida, Virginia, and South Carolina. The sponsors are Babcock & Brown LP and affiliates of Alliance Holdings Investments. On Aug. 24, the creditors of Babcock & Brown voted to place the company into liquidation. All Babcock & Brown-sponsored non-recourse loans are backed by a geographically diverse pool of multi-family properties. These properties are generally older, Class B and C properties that typically require more capital to remain competitive.
Maui Prince Resort, UBS 2007-FL1
The $192.5 million loan is secured by a 310-room hotel built in 1986 and in Maui, HI. The borrower is seeking to restructure the loan and is speaking to its mezzanine lenders about a possible purchase.
Bethany Maryland Portfolio II, LB-UBS 2007-C2
The $185 million loan is secured by three cross-collateralized, cross-defaulted multifamily properties in Landover Hills, Temple Hills, and Bel Air, MD comprising 1,909 units. The properties were not included in the Bethany bankruptcy filing in March.
Largest Fitch Loans of Concern
The following loans are current and at the master servicer but considered Fitch loans of concern. The loans have shown declines in performance as a result of current market conditions or are unlikely to meet stabilization expectations at issuance.
Peter Cooper Village/Stuyvesant Town, Cobalt 2007-C2, ML-CFC 2007-5, ML-CFC 2007-6, WBCMT 2007-C30
The $3 billion loan is secured by 56 multistory buildings with 110 different addresses situated on 80 acres that include 11,227 residential apartments in New York City. The borrowers, Tishman Speyer Properties, LP and BlackRock Realty, acquired the property with the intent of converting rent-stabilized units to market rents. As of July 2009 there were 4,461 market units and 6,768 rent-stabilized units, with a vacancy rate of 4.1%.
LXR Hospitality Pool, WBCMT 2007-WHALE 8
The $1.07 billion loan is secured by 12 hotel properties in Puerto Rico, Florida, Arizona, California, New York, and Jamaica. The management and affiliation changes to Hilton brands are in the document review stage and nearly complete.
Kyo-ya Hotel Portfolio, WBCMT 2006-WHALE 7
The $1.05 billion loan is secured by six full-service hotels totaling 6,127 rooms. All but one of the hotels is in Hawaii, which has a negative outlook on hospitality performance for the coming years.
Kerzner International Portfolio, CSMC 2006-TFL2
The $669 million loan consists of a diverse portfolio of real estate, including resort casinos, golf courses, timeshares, vacant waterfront land, and ongoing construction projects. The portfolio is sponsored by Istithmar PJSC, Whitehall Funds, Kerzner Family, Colony Capital, Baron Funds, and The Related Cos.
Lord & Taylor Portfolio, MLFT 2006-1
The $652 million loan is secured by 36 Lord & Taylor retail stores (28 of which are attached to regional malls, while eight are freestanding locations) and one 587,364-square-foot distribution center.
Wells Fargo Tower, GSMSC 2007-GG10
The $550 million loan is secured by a 1,385,325-square-foot, 53-story class A multitenant office building with a five-level subterranean parking garage in Los Angeles, CA. The loan is sponsored by Maguire Properties. The loan was underwritten based on pro forma rental rate increases by the banker that are not likely to materialize in this market.
Five Times Square, WBCMT 2007-C30
The $536 million loan is secured by the leasehold interest in a 1.1 million-square-foot office property in New York City. The property is 96.7% leased to Ernst & Young through 2022 with two 10-year extensions. Fitch remains concerned with high leverage of the loan at $973/square foot on the trust portion as compared with other properties of similar characteristics.
Two California Plaza, GSMSC 2007-GG10
The $470 million loan is secured by a class A 54-story office building with 1.33 million square feet, consisting of an atrium, three levels of retail, and a five-level subterranean parking garage in Los Angeles. The loan is sponsored by Maguire Properties.
Planet Hollywood Resort and Casino, CSMC 2007-TFL2
The $460 million loan is secured by a recently renovated hotel and casino in Las Vegas, NV. The Las Vegas gaming market has experienced significant declines in tourist visits and gaming revenue, which will negatively affect the stabilization of the asset.
350 Park Avenue, WBCMT 2007-C30
The $430 million loan is secured by a 538,424-square-foot office property in New York City. The loan was underwritten by the banker to an expected increase in cash flow. The loan remains a concern due to the lack of structural reserves to fund debt service shortfalls, and declining market conditions.
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