The number of CMBS loan modifications and liquidations has declined compared to 2011, but the fall-off in modifications is far outpacing the decline in liquidations. As a result, the liquidation-to-modification ratio for 2012 is currently around 4:1 versus 3:1 for 2011.
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Through July 2012, Wells Fargo Securities LLC Structured Products Research identified 190 modifications and 853 liquidations, compared to 355 modifications and 1,075 liquidations for the same period in 2011.
There also continues to be a substantial gap in terms of average loan size for liquidations and modifications. Smaller loans are getting liquidated, while the larger ones are being modified.
In 2012, the average size of liquidated loans has been about $9.5 million compared to $37 million for modified loans.
Special Servicer Shake-Up Coming?
Among the special servicers, LNR continues to have the highest liquidation-to-modification ratio at almost 11:1. LNR's liquidation-to-modification ratio has increased considerably since Wells Fargo last reviewed special servicers in July 2011. At that time the ratio was 6.5:1.
LNR remains an active user of the loan-sales market as a means of quickly disposing of non-performing loans. LNR also has the highest average loan size for modified loans, at $93.3 million, and one of the highest average loan sizes for liquidated loans, at $11.7 million.
LNR is currently being offered for sale. As LNR is such a large part of the current special servicing universe, a sale could significantly affect loan resolutions going forward, depending on the ultimate buyer, according to Wells Fargo's analysis.
After LNR, Berkadia has the next-highest liquidation to modification ratio, at 6:1, which is up from 5:1 at the time of Wells Fargo's previous analysis. Given that Berkadia is the special servicer for a more seasoned portfolio of transactions, liquidation often makes more sense than modification, Wells Fargo reported.
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