May 26, 2011 - Resort Maui ($250 million, currently 90 days delinquent), and Renaissance Mayflower. Hotel ($200 million,
Structured Finance Commercial Mortgage Special Report
U.S. CMBS 2010 Loan Default Study Defaults Continued to Climb
Analysts Britt Johnson +1 312 606-2341
[email protected]
Mary MacNeill +1 212 908-0785
[email protected]
David Ro +1 312 368-3132
[email protected]
Summary Defaults Continued to Climb Defaults in Fitch rated, fixed-rate conduit transactions continued to increase in 2010. In total, 1,477 loans totaling $22.09 billion defaulted for the first time, compared with 1,464 loans totaling $17.75 billion in 2009. This represents an increase of 20% by balance. In 2010, 4.1% of all Fitch rated CMBS loans defaulted compared to 3.3% in 2009. Cumulative defaults increased by two thirds reaching 10.60% ($57.58 billion) through year-end 2010, compared with 6.59% ($35.48 billion) through year-end 2009 (see chart below). The challenging market conditions that persisted in 2010, coupled with limited new issuance between 2008 and 2010 caused the increase in cumulative defaults.
Defaults Expected to Increase But at a Slower Pace The pace of defaults moderated in the latter half of 2010; there were $8.41 billion in new defaults during the first quarter, which declined to $3.50 billion during the fourth quarter. While this demonstrates some slowing in the pace of new defaults, it is too early to predict a meaningful decline in default rates in the near future due to commercial real estate fundamentals lagging the overall economic environment. Fitch expects the cumulative default rate will exceed 12% by the end of 2011. The 2007 vintage had by far the most defaults in 2010, with almost one-half of all new defaults by principal balance. The 2006 and 2005 vintages followed, with 19.2% and 16.1%, respectively. Loans originated in these vintages were generally larger by loan balance, aggressively underwritten, and more highly leveraged. Large loans from later vintages continued to default in 2010. All 22 defaulted loans greater than $100 million were from the 20052008 vintages; an additional 50 loans greater than $50 million defaulted, with all but three coming from these vintages. CMBS Loan Defaults Continue to Spikea
12
Annual Default Rate
(%)
Cumulative Default Rate
10 8 6 4 2 0 1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
a
Calculated based on balance.
www.fitchratings.com
May 19, 2011
2010
Structured Finance Office defaults began to increase in 2010, a trend Fitch expects to continue into 2011. In 2010, $5.36 billion of loans backed by office properties defaulted, compared with $3.58 billion in 2009. Office was second to multifamily in 2010 defaults.
2010 Default Activity Pace of Default Activity Slows During Latter Half of 2010 While the recession officially ended in mid 2009, commercial real estate performance continued to deteriorate into 2010, as it lags the overall economy. Since Fitch’s study began, defaults peaked in first quarter 2010 (484 loans, $8.41 billion), followed by the fourth quarter of 2009 (452 loans, $5.97 billion).
Thirty-Eight Percent of Defaults Occur in the First Quarter In 2010, 1,477 loans totaling $22.09 billion defaulted, an increase of 20% over 2009 default levels. The pace of defaults slowed during the year, as each subsequent quarter had fewer defaults. At the end of the first quarter, $8.4 billion loans newly defaulted. By the end of the second, third, and fourth quarters, $5.4 billion, $4.8 billion, and $3.5 billion new defaults had occurred, respectively. While new defaults slowed during the year, it is too soon to predict a near-term plateau or decline in default levels. New defaults in the coming years are likely to be from loans beginning to amortize after an initial interest-only period or whose properties are in struggling or slow-growth markets and not likely to keep tenants at current rental rates. In addition, there are higher rates of five-year interest-only loans in 2006 and 2007 vintages that will mature in the next two years. As liquidity continues to improve in the sector, defaults are expected to be slower and in less dramatic increments.
Annual and Cumulative CMBS Loan Defaults by Default Years Default Year 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996
Annual Default ($Mil.)
Cumulative Default ($Mil.)
Cumulative Issuance ($Mil.)
Annual Default Rate (%)
Cumulative Default Rate (%)
Annual Default Count
Cumulative Default Count
Cumulative Issuance Count
22,094 17,745 3,242 1,204 1,572 1,855 2,162 2,864 1,917 1,350 941 350 200 51 30
57,576 35,482 17,737 14,495 13,291 11,720 9,865 7,703 4,838 2,922 1,572 631 281 81 30
542,953 538,626 538,626 534,390 404,582 314,953 238,170 204,064 175,474 160,570 133,613 113,086 83,427 43,904 18,728
4.07 3.29 0.60 0.23 0.39 0.59 0.91 1.40 1.09 0.84 0.70 0.31 0.24 0.12 0.16
10.60 6.59 3.29 2.71 3.29 3.72 4.14 3.77 2.76 1.82 1.18 0.56 0.34 0.18 0.16
1,477 1,464 364 188 253 317 324 455 316 263 132 54 42 9 8
5,666 4,189 2,725 2,361 2,173 1,920 1,603 1,279 824 508 245 113 59 17 8
57,217 57,026 57,026 56,711 48,647 41,891 36,043 32,671 29,237 27,329 23,551 20,034 14,205 8,114 3,903
Large-Loan Defaults Continued to Increase in 2010 Large-loan defaults increased during 2010, continuing the trend started in 2009. In 2010 72 loans greater than $50 million defaulted, and in 2009 56 loans greater than $50 million defaulted, compared with only five that defaulted in 2008. Although many large loans will be disposed by special servicers for losses in the near term, Fitch has also seen a rise in modifications of large loans on high quality properties with strong sponsorship. Modifications such as loan extensions and rate reductions may allow borrowers to maintain control of their properties if they can provide funds for debt service
2
U.S. CMBS 2010 Loan Default Study
May 19, 2011
Structured Finance payment, principal reduction, reserve establishments, or other equity contributions. While this may only delay defaults and/or eventual losses, in some cases it may provide an avenue for a better principal recovery if economic conditions continue to improve. See the addendum on page 9 for more discussion on modifications.
Vintage Performance 2007 Vintage Defaults are 50% of the Total New Defaults Highest from 2007 Vintage (As of Dec. 31, 2010) 2008 2007 2006 2005 2004 Vintage
Vintage performance historically has been affected by numerous factors. However, the high levels of defaults in later vintages (20052008) have become the overriding trend in CMBS defaults since 2009, due to aggressive underwriting and highly leveraged assets. When combined with the economic downturn that has affected most loans’ performances, the high rates of later vintage defaults have had the biggest impact on overall defaults. A summary of 2010 CMBS defaults by vintage is illustrated below.
2003 2002 2001 2000 1999 1998 1997 1996
0 2 4 6 8 10 12 The 2007 vintage had the most Default ($ Bil.) defaults in 2010 at $10.85 billion and 432 loans, which accounted for 49.1% of total defaults during the year and more than twice that of any other vintage. Of the 2007 vintage defaults, the highest proportion was multifamily, which consisted of $4.21 billion representing 19% of all 2010 defaults. This includes the $2.75 billion Fitch-rated portion of the Stuyvesant Town/Peter Cooper Village (ST/PCV) loan, the largest loan in Fitch’s default study history, which is securitized in five 2007 vintage transactions, four of which are rated by Fitch.
New Defaults Highest from 2007 Vintage Vintage
Defaulted ($Mil.)
% by Balance
Count
% by Count
33.7 37.4 210.6 103.7 376.5 758.4 304.7 529.7 883.3 3,556.7 4,251.4 10,845.7 202.5 22,094.2
0.15 0.17 0.95 0.47 1.70 3.43 1.38 2.40 4.00 16.10 19.24 49.09 0.92 100.00
6 11 21 24 55 99 45 52 104 244 361 432 23 1,477
0.41 0.74 1.42 1.62 3.72 6.70 3.05 3.52 7.04 16.52 24.44 29.25 1.56 100.00
1996 1997
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Total
U.S. CMBS 2010 Loan Default Study
May 19, 2011
3
Structured Finance The 2006 vintage experienced the second-highest amount of defaults in 2010, with 361 loans totaling $4.25 billion, representing 19.2% of new defaults in 2010. This amount is slightly less than in 2009, when $5.12 billion 2006 vintage loans defaulted. Four of the five largest 2006 vintage defaults were retail and included Montclair Plaza ($190.0 million, currently in foreclosure), Chapel Hills Mall ($121.6 million, currently a nonperforming matured loan), Mall of Louisiana ($120.0 million, a loan to the sponsor General Growth Properties that has returned to performing in accordance with their plan to exit bankruptcy), and DDR/Macquarie Mervyns Portfolio ($106.3 million, the properties are currently listed for sale). The 2005 vintage experienced the third-highest amount of defaults in 2010, with 244 loans totaling $3.56 billion, representing 16.1% of new defaults in 2010. This compares with the $2.69 billion of 2005 vintage loans that defaulted in 2009. The largest two 2005 vintage defaults are located in Las Vegas, NV: World Market Center ($225.0 million, currently 90 days delinquent) and Westin Casuarina Resort & Spa ($159.7 million, currently in foreclosure). The remaining largest 2005 vintage defaults consisted of a mix of property types and locations. Historical defaults traditionally peaked after eight years of seasoning. In 2010 this changed, as default rates were highest after only four years of seasoning, followed by another peak in year eight. The new spike in defaults in year four was led by the 2007 vintage, which had an 8.4% default rate in 2010. This was significantly higher than any other vintages’ defaults in any year. The 2007 vintage had the highest percentage of aggressively underwritten, overleveraged loans, many of which were nonstabilized assets and, due to depressed market conditions, could not achieve their original business plans and defaulted. Comparisons of defaults by loan seasoning is shown on the charts on page 9. The 2000 vintage continues to have the highest cumulative default rate at 14.6%. However; the 2007 vintage is close behind at 13.7%, with 2008 and 2006 at 12.8% and 11.5%, respectively. These later vintages have high concentrations of aggressively underwritten loans, many of which are $50 million or larger. Even if the pace of 2007 vintage defaults slows, assuming at least 2% of the vintage defaults annually (compared with the 8.4% that occurred in 2010), the 10-year cumulative default rate for this vintage will exceed 25%.
Property Type Performance Multifamily Takes the Lead, Followed by Office and Retail After dropping down to second place in 2009, multifamily once again took the lead in 2010 by dollar balance of defaults, with 28.4% of the total. Office and retail followed with 24.3% and 23.8%, respectively, with hotel rounding out the top four with 16.4%. Multifamily and hotel default percentages in 2010 exceeded their issuance percentages of CMBS, while retail and office remained lower. Loan defaults in 2010 by property type are shown in the chart at the right. The four largest contributors to CMBS loan defaults by property type are discussed in detail in the following sections.
4
Multifamily Leads Defaults in 2010
Retail 23.8%
Hotel 16.5% Industrial 3.8% Other 3.2%
Office 24.3%
Multifamily 28.4%
Notes: Calculated based on balance. Numbers may not add to 100% due to rounding.
U.S. CMBS 2010 Loan Default Study
May 19, 2011
Structured Finance Multifamily Takes the Lead Again After Stuyvesant Town Defaults Multifamily defaults overtook retail in 2010 to become the property type with the highest amount of defaults by balance. In 2010, 310 multifamily loans defaulted, totaling $6.28 billion, which represented 28.3% of defaults. Multifamily defaults were 38% higher than levels in 2009, when 357 multifamily loans totaling $3.91 billion defaulted. This increase was expected, as it was known that the ST/PCV loan would default in early 2010 after the reserves that were being used to pay debt service were depleted. The $2.8 billion Fitch-rated portion of the ST/PCV loan represented 43.8% of the 2010 multifamily defaults. Without the ST/PCV loan, multifamily defaults would have represented 18% of 2010 defaults and would have been only 8% higher than the 2009 level. This suggests some level of stabilization can be expected in the next year. After peak levels of vacancy and unemployment levels and low rates of household formation in 2010, multifamily vacancy levels are expected to decline as demand improves in 2011, which will have a stabilizing effect on performance. As a result, the level of multifamily defaults is not expected to increase in 2011. Due to the ST/PCV default, 40% of the multifamily defaults were in New York, and 60% were in the 2007 vintage. Other leading states were Texas (6.7%), Florida (6.3%), Nevada (5.8%), and Georgia (5.2%). While Texas, Florida, and Georgia are repeat topfive states from 2009, Nevada is new to this ranking. The Nevada multifamily defaults are almost exclusively in the Las Vegas area.
Cumulative CMBS Issuance and Defaults by Property Type Property Type
Cumulative Issuance ($Mil.)
% of Total Issuance
Cumulative Default ($Mil.)
Default % by Issuance Balance
5,990 46,635 31,298 99,482 158,740 36,225 164,541 542,912
1.1 8.6 5.8 18.3 29.2 6.7 30.3 100.0
1,304 9,371 2,855 15,285 11,835 1,968 14,962 57,581
21.8 20.1 9.1 15.4 7.5 5.4 9.1 10.6
Healthcare Hotel Industrial Multifamily Office Other Retail Grand Total
Office Second-Highest 2010 Defaults In 2010, office defaults by balance were second to multifamily with 24.2% of the total, consisting of 360 new defaults and $5.36 billion. Office defaults increased two thirds over levels in 2009, when 277 loans totaling $3.6 billion defaulted. Office defaults surpassed the third highest contributor retail by just $37.3 million. Because office properties have traditionally performed better than the other major property types, the cumulative office rate continues to be the lowest of the major property types at 7.5%, which compares favorably with multifamily and retail cumulative rates of 15.4% and 9.1%, respectively. Among the new office defaults in 2010, 71 loans, or 58.2% of the office defaults, were loans greater than $25 million. Eight office defaults were greater than $100 million and included overleveraged properties located in major markets such as Seattle, Atlanta, Manhattan, and various markets in Southern California. Slightly less than one-half of the 2010 office defaults were concentrated in five states, mostly due to large loan defaults from these regions: California (17.3%); New York (10.8%); Washington (7.9%); Georgia (6.1%); and Florida (5.6%). Only California and New York were in the top five states for office defaults in 2009. U.S. CMBS 2010 Loan Default Study
May 19, 2011
5
Structured Finance Cumulative Issuance and Defaults by Property Type Issuer Dollar Balance 200
Defaults Dollar Balance
($ Bil.)
150 100 50
9.09%
7.46%
15.36%
20.09%
0 Retail
Office
Multifamily
Hotel
9.12% Industrial
Property Type (% of Default)
Although there have been some signs of improvement in certain major markets, Fitch maintains a negative outlook on existing office performance in 2011. Most CMBS office loans were underwritten in 20052008, when lease rates were at the top of the market. Almost 80% of the 2010 office defaults were from these four vintages. As leases expire, landlords will continue to be forced to lower rents and offer out-of-pocket leasing costs and concessions. Therefore, it is expected that office recovery will lag that of other property types, and in 2011 office loans will continue to experience a high level of defaults.
Retail the Only Property Type with a Decline in Defaults Retail defaults were third in 2010, with 475 loans defaulting, totaling $5.26 billion and 23.8% of all defaults. Of the four property types with the highest defaults, retail was the only sector to experience fewer defaults than in 2009, when 508 retail loans totaling $5.73 billion defaulted. Of the 2010 retail defaults, 78% were in 20052008 vintages. Among the new 2010 retail defaults, 44% were concentrated in five states: California (15.0%); Florida (10.7%); Texas (8.5%); Colorado (4.8%); and Nevada (4.7%). California, Florida, and Texas were among the five largest concentrations in 2009, with Colorado and Nevada being new additions. There were seven retail loans greater than $100 million ($937 million in total) that defaulted in 2010, compared with just three in 2009. Of the 10 largest retail defaults, only one consisted of a portfolio of properties; the remaining nine loans were securitized by malls. Fitch’s outlook on the retail sector is stabilizing, as consumers have begun to cautiously increase spending and may have reached a point where they can no longer put off the purchase of certain goods. Retail properties are expected to recover, although at a relatively slow pace due to overbuilding immediately prior to the recession. In addition, many landlords have agreed to lower rents and provide concessions to maintain occupancy levels. Retail centers focusing on discount and value-oriented needs should fare better than malls, which are expected to continue to underperform. Despite Fitch’s stabilizing outlook on retail, the sector has the second-highest cumulative default rate at 9.1%, compared with the other three major property types. However, it remains lower than the CMBS overall cumulative level of 10.6%.
Hotel Cumulative Defaults Reach 20% Hotel defaults in 2010 consisted of 167 loans totaling $3.63 billion. This represented 16.4% of 2010 defaults and is 15% higher than the 153 loans totaling $3.15 billion that defaulted in 2009. The increase includes the $825.4 million Innkeepers Portfolio (Innkeepers), the largest hotel default in 2010. The average loan size for hotel defaults in 2010 was $21.8 million, the highest of all property type defaults. However, fewer loans greater than $100 million defaulted in 2010 compared with 2009; eight defaulted in 2009 while six, including Innkeepers, defaulted in 2010.
6
U.S. CMBS 2010 Loan Default Study
May 19, 2011
Structured Finance The cumulative default rate for hotel loans at the end of 2010 was 20.1%, the highest of the four major CMBS property types. This represents a 45% increase from 2009, when the cumulative hotel default rate was 13.9%. Hotel performance in most markets is expected to improve along with the general economic recovery. Luxury and upscale hotels are expected to lead the recovery, as they are rebounding from the steepest declines. Per Smith Travel Research, as of May 2011 overall U.S. hotel occupancy levels, ADR, and RevPAR improved 6.0%, 4.8%, and 11.1%, respectively, over the same period in the prior year. The improvement is led by the luxury segment, in which occupancy, ADR, and RevPAR levels were 5.5%, 7.2%, and 13.1% higher, respectively, compared with prior-year levels. Hawaii may be the exception to the recovering hotel sector as the economic effects of the earthquake and tsunami in Japan are expected to impact tourism to the state for some time. Of the 2010 hotel defaults, 71.4% were in the 2007 vintage and only one of the 10 largest hotel defaults were not from this vintage. The largest three hotel defaults were the Innkeepers Portfolio ($825.4 million, currently 90 days delinquent), Four Seasons Resort Maui ($250 million, currently 90 days delinquent), and Renaissance Mayflower Hotel ($200 million, the loan has been brought current).
Increase in Cumulative Defaults Will Not be as Dramatic in 2011 Fitch’s cumulative default matrix illustrates proportional annual default rates by vintage and years of loan seasoning. When looking at the first 10 years of loan seasoning, the cumulative average default rate increased to 11.05% from 9.12% in 2009, leading to an average annual default rate for the first 10 years of 1.10%. Average Annual Default Rate As of Dec. 31, 2010
Average Annual Default Rate by Vintage As of Dec. 31, 2008
(%)
2.0
Pre 2005 Vintages
2005–2008 Vintages
(%)
6.0 5.0
1.5 4.0 1.0
3.0 2.0
0.5 1.0 0.0
0.0 1
2
3
4
5
6
7
8
9 10 11 12 13 14 15 16 17 18
Seasoning (Years)
1
2
3
4
5
6
7
8
9 10 11 12 13 14 15 16 17 18
Seasoning (Years)
The average annual default rate by seasoning is illustrated in the above-left chart. Contrary to prior years, the chart demonstrates there is a peak in defaults in year four, which tapers off until another rise in year eight. In vintages prior to 2005, default rates rise to a peak in year eight then taper to nearly zero by year 13. However, the newer vintages from 20052008 had sharp rises in default rates in years one through four, which skewed the overall numbers. The 2006 and 2007 vintages alone contribute a significant amount to year four defaults. While defaults in these vintages are not expected to taper off, Fitch does not expect there will be as significant increases in defaults in 2011.
U.S. CMBS 2010 Loan Default Study
May 19, 2011
7
Structured Finance Historical Default Rates (%) Cumulative Default Rate Cumulative Default Rate Years 110 Average Annual Default Rate Years 110
2010
2009
2008
2007
2006
2005
12.62 11.05 1.10
10.23 9.12 0.91
8.13 7.53 0.75
7.85 7.37 0.74
8.47 7.88 0.79
8.61 8.17 0.82
Default Matrix Vintage and Seasoning (Sum of % of Default) Vintage
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
CDR
1993 0.00 0.00 0.61 0.00 1994 0.00 0.00 0.91 0.00 1995 0.03 0.25 0.33 0.37 1996 0.00 0.31 0.86 0.74 1997 0.00 0.26 0.37 1.61 1998 0.05 0.34 0.55 0.75 1999 0.00 0.36 0.79 0.72 2000 0.09 0.53 1.66 1.96 2001 0.06 0.55 0.98 0.95 2002 0.00 0.25 0.47 0.36 2003 0.02 0.10 0.56 0.18 2004 0.01 0.11 0.24 0.46 2005 0.13 0.16 0.31 0.44 2006 0.00 0.17 0.83 5.71 2007 0.04 0.41 4.87 8.36 2008 5.58 2.42 4.78 2009a 2010 0.00 AADR 0.38 0.39 1.20 1.51 AADR Years 118: Cumulative Average Default Rate Years 110: AADR 110:
1
2
3
0.00 0.00 0.67 0.96 1.33 1.09 1.90 1.75 1.19 0.62 0.37 0.61 3.59 4.74 1.34
0.00 0.23 0.77 2.28 1.93 1.75 1.38 1.88 0.51 0.35 0.41 2.49 4.63 1.43
0.00 1.95 1.43 1.73 2.41 1.01 1.13 1.11 0.46 0.29 1.66 2.59 1.31
2.10 1.45 2.05 1.32 1.81 0.53 0.95 0.52 0.99 2.34 1.85 1.45
0.00 0.00 2.79 1.42 0.75 0.84 0.29 0.69 2.99 2.04 1.18
0.00 0.26 0.41 0.25 0.61 0.27 0.63 2.53 2.81 0.86
0.00 0.00 0.82 0.57 0.07 0.93 2.65 1.83 0.86
0.33 0.00 0.39 0.02 0.21 0.98 0.35 0.33
0.00 0.00 0.00 0.06 0.42 0.53 0.17
0.00 0.00 0.00 0.35 0.15 0.10
0.00 0.00 0.17 0.30 0.12
0.00 0.00 0.00 0.00
0.00 0.00 0.00
0.00 0.00
3.04 4.80 10.48 11.16 11.94 9.62 11.14 14.55 11.49 6.72 5.16 6.51 9.26 11.46 13.68 12.79 0.00 0.00 12.62 0.00 9.00 0.90
a
No CMBS issuance in 2009. CDR Cumulative default rate. AADR Average annual default rate.
Methodology / Study Universe There was limited fixed-rate conduit CMBS issuance in 2010. The default study universe was updated from 2009 to include the 191 loans totaling $4.29 billion issued in 2010, which brings the total to 367 transactions and 57,217 loans for a total of $543 billion. For purposes of this study, Fitch defines a loan as defaulted when it becomes at least 60 days delinquent for the first time. The study population includes 57,217 loans in 367 transactions, with an aggregate securitized principal balance of $543 billion. The loans were all fixed-rate, newly originated loans within standard conduits, large loan, and fusion deals. The U.S. transactions were rated by Fitch and issued between January 1993 and December 2010. For loans secured by more than one property or reported as mixed use, the most predominant property type was used to categorize the loan. Prior to 2008, the number of loans that did not refinance at maturity was minimal. Therefore, defaults of this type have not been included in Fitch CMBS default studies. This began to change in 2008, when 209 loans totaling $844.4 million did not refinance at maturity, a trend that continues to increase; in 2009, 414 loans totaling $2.873 billion defaulted at maturity, and in 2010, 418 loans totaling $4.259 billion did not refinance at maturity. While Fitch expects continued high levels of defaults at maturity, for consistency this default study does not include loans that default at maturity. If included, the annual default rate in 2010 would be 4.85%.
8
U.S. CMBS 2010 Loan Default Study
May 19, 2011
Structured Finance Addendum Loan modifications are typically thought of as a resolution to a defaulted loan, but more than one-half of the loans classified as modified have never actually defaulted. There are 248 loans, totaling $9.2 billion in fixed-rate conduit or large loans that have never defaulted, according to Fitch default study methodology, but are classified by the servicer as a modified loan (see the table below).
All Modified Loans Reported by Servicers Defaulted Pre-modification Never Defaulted Total
Original Loan Balance ($Mil.)
Loan Count
% by Balance
8,298.2 9,247.8 17,545.9
407 248 655
47.3 52.7 100.0
Original Balance ($Mil.)
No. of Loans
% by Balance
1,718.0 1,556.2 4,240.9 1,633.5 5.4 93.8 9,247.8
22 40 119 58 1 8 248
18.6 16.8 45.9 17.7 0.1 1.0 100.0
Modified Loans Never in Default by Modification Type Servicer Modification Code Amortization Change Combination Maturity Date Extension Other Principal Writeoff Temporary Rate Reduction Total
Most of these modified loans, while never actually defaulting on debt service, did not pay according to their original loan terms; therefore, they may be considered a default. If these loans were included in the default study, the cumulative default rate would be 12.3%. These numbers are expected to grow in the near term, as many servicers have been modifying performing loans. Often, borrowers are asking for relief and, as a bargaining tool, have agreed to keep the loan current during workout negotiations. The following three loans are the largest performing loans classified as being modified. Each occurred in 2010:
The $1.0 billion Fitch-rated portion of the Beacon Seattle & DC Portfolio (maturity date extension this loan had an additional modification in 2011).
The $900 million Fitch-rated portion of the Ala Moana Center (amortization change).
The $273 million Providence Place Mall (maturity date extension the loan has recently paid in full as of the April 2011 distribution date).
To the extent modified loans are flagged by the master servicer, Fitch will continue to track for trends. Many of the performing modified loans may incur a loss at some point, as many recent modifications have included some forgiveness of principal or interest. The loans modified after default are currently tracked in the default and loss studies. A breakdown of their current status is in the table on page 10.
U.S. CMBS 2010 Loan Default Study
May 19, 2011
9
Structured Finance Defaulted Modified Loans by Current Loan Status Current Loan Statusa Current 30 Days 60 Days 90 Days Foreclosure REO Performing Matured Nonperforming Matured Paid in Full Total
Original Balance ($Mil)
Loan Count
% by Balance
5,827.6 303.2 281.0 641.3 231.7 263.0 135.6 347.1 267.7 8,298.2
251 11 5 41 13 12 6 29 39 407
70.2 3.7 3.4 7.7 2.8 3.2 1.6 4.2 3.2 100.0
a
As of April 2011.
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U.S. CMBS 2010 Loan Default Study
May 19, 2011
Structured Finance
U.S. CMBS 2010 Loan Default Study
May 19, 2011
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