Friday, October 22, 2010

Realpoint: September 2010 CMBS Delinquency Report

Monthly Delinquency Report - Commentary

2010 Realpoint LLC

Executive Summary

In September 2010, the delinquent unpaid balance for CMBS continued to exhibit moderate monthly growth having increased by an additional $801.2 million, up to $62.19 billion from $61.39 billion a month prior (a 1.3% increase). This followed only $551.8 million in growth from July to August 2010 and $387.9 million in growth from June to July 2010 – optimistically showing signs of slowdown from earlier this year, as it remained well below the average growth per month of $3.14 billion experienced from January through June of 2010. On the other hand, outside of a slight decrease in both the 30-day and 90+-day categories, the remaining delinquency categories each increased, fueled by further delinquency degradation and credit deterioration. Despite ongoing loan liquidations, modifications and resolutions, the distressed 90+-day, Foreclosure and REO categories as a whole grew by $1.16 billion (2.4%) from the previous month after falling for the first time in almost three years from July to August 2010. Having grown in aggregate for 31 straight months prior to such decline, these distressed categories remain up $30.07 billion (153%) in the past year (up from only $19.69 billion in September 2009). Overall, the delinquent unpaid balance is up 96% from one-year ago (when $31.73 billion of delinquent unpaid balance for September 2009), and is now over 28 times the low point of $2.21 billion in March 2007.

The total unpaid balance for CMBS pools available for review for the September 2010 remittance was $773.61 billion, down from $773.98 billion in August 2010. Both the delinquent unpaid balance and delinquency percentage over the trailing twelve months continue to trend upward ... but at a moderated pace. The resultant delinquency ratio for September 2010 of 8.04% (up only 1.4% from the 7.93% reported a month prior) is over two times the 3.94% reported one-year prior in September 2009 and over 28 times the Realpoint recorded low point of 0.283% from June 2007.

The continued increase in both delinquent unpaid balance and percentage is now being impacted by the rapid growth in liquidations on a monthly basis and a potential slow-down in the reporting of new delinquency for the remainder of 2010.

Both liquidation activity and average loss severity has been on the rise over the trailing 12-months, especially in the past few months of 2010. Another $521.6 million in loan workouts and liquidations were reported for September 2010 across 58 loans, at an average loss severity of 47.5%. Eighteen of these loans, however, at $176.2 million experienced a loss severity near or below 1%, most likely related to workout fees, while the 40 loans at $345.5 million experienced an average loss severity near 68%. This activity followed $583.5 million in loan workouts and liquidations for August 2010 across 95 loans, at an average loss severity of 51.8%, and a substantial $1.035 billion in loan workouts and liquidations for July 2010 across 200 loans, at an average loss severity of 54.1%. Such activity marked the highest monthly liquidation amount tracked by Realpoint. Year-to-date in 2010, $5.53 billion in loan workouts and liquidations have been reported across 897 loans, at an average loss severity of 51% - including $4.15 billion in the past six-months alone.

Most noteworthy on a go forward basis, the $4.1 billion Extended Stay Hotel loan from the WBC07ESH transaction remained 90+-day’s delinquent in September 2010 but will reach  resolution with the October remittance. On May 28, 2010, Paulson & Co., Centerbridge Partners LP and Blackstone Group LP won a bankruptcy auction bid for the Extended Stay Hotel chain at $3.925 billion ($53,375/key). The U.S. Bankruptcy court approved the auction in June 2010 and the sale to Centebridge closed in September 2010, with certificate-holder distributions made in October 2010. Approximately 92% of the senior trust debt is expected to be paid in full, while the delinquent unpaid balance for CMBS would be reduced by $4.1 billion. Actual payoff and realized loss figures continue to be reported with October 2010 distributions.