REPORT FROM THE U.S.—Commercial mortgage-backed securities are inching their way back into the hotel finance conversation, but their overall health remains weak.
Fitch Ratings in late July reported that the cumulative default rate for fixed-rate U.S. CMBS increased to 12.9% as of the end of second quarter 2011. That’s a 228-basis point increase over year-end 2010.
Further, each vintage from 2005-2008 saw more than a 200-basis point spike in defaults from year-end 2010. The 2007 vintage saw the largest movement, up 549 basis points. The largest four newly defaulted loans all were originated in 2007, Fitch Ratings said in a statement on 29 July.
CMBS hotel delinquency through April 2011 represents 15.7% of the total CMBS delinquency with 422 loans representing US$9.95 billion in outstanding principal secured by hotel assets, William Stuckeman, managing director of 1st Service Solutions, said in an email.
Hotel delinquency has come down somewhat since April, but still leads all asset classes with 13.2% of all hotel CMBS loans classified as delinquent, he said.
“It remains to be seen how the CMBS world will react to the significant amount of CMBS loans that will mature in 2011 and 2012. A significant portion of these loans were originated in 2006 and 2007, and despite the recovery in (revenue per available room), profitability for the most part has not recovered enough to restore value,” Stuckeman said.
He added, “The CMBS universe with close to (US)$10 billion in delinquent debt on over 400 hotel loans represents a significant challenge and opportunity for debt and equity providers, however current loan-to-value issues, the willingness for special servicers and owners to continue to execute loan modifications and the lack of debt to finance aggressively priced resolutions will likely continue to limit the opportunities for debt and equity opportunities to emerge from the CMBS market in the near term.”
Still there does appear to be at least the slightest glint of hope for CMBS, as new defaults are down for the year, according to Fitch Ratings.
Newly defaulted CMBS for second-quarter 2011 came in at US$4 billion, compared to US$5.8 billion in the first quarter, Fitch Ratings said.