Nov 05 2008
CMBS Workouts Proceed, Multifamily Delinquencies Stabilize, Amy Rubenstein CEO of Milan Properties Inc. reports
Amy Rubenstein CEO Milan Properties Inc.
U.S. CMBS loan performance continues to be stable as workouts corresponding to multifamily loans have offset preliminary weakening in the retail sector, according to Fitch Ratings in its latest U.S. CMBS loan delinquency index
"The proportion of delinquent multifamily loans as a percentage of all delinquencies within the index has fallen steadily, to 46% in September 2008 from a peak of 64% in April," said Susan Merrick, managing director and U.S. CMBS group head. "This is mostly due to the ongoing resolution of $441 million of defaulted Texas multifamily loans corresponding to one borrower."
The borrower concentration from the MBS Cos. sponsor consisted of 37 assets totaling $441 million, which serve(d) as collateral for 19 distinct transactions within the Fitch portfolio. Because six special servicers service the assets separately, workout strategies have varied. Individual loan resolutions have included asset sales, borrower recapitalizations, discounted payoffs, note sales, and loan modifications to bring payments current.
Since May 2008, 17 of the loans, totaling approximately $195 million (44% of the MBS concentration), have been resolved. The loss severities on those loans ranged from 0% to 64%, with a weighted average of 20%.
Examples of some of the MBS workouts are as follows.
- TJ Shan of Harleysville, PA, pushed past nine other offers to claim the 220-unit Crescent Oaks Apartment Homes at 3001 W. Normandale St. in Fort Worth, TX, for close to the $4.35-million ask.
- Triumph Land & Capital Management LLC and Hudson Realty Capital pulled 576 class B units from receivership by acquiring $18 million of debt. The joint venture will invest an additional $4 million to $6 million into upgrading two complexes: the 228-unit Huntwick Apartments at 5100 FM 1960 Road West in Houston and the similarly sized Timbers of Pine Hollow at 2020 Plantation Dr. in Conroe, TX.
- Steve Oden (Steelwood LLC) purchased North Castle in Austin, TX, and Ray Sperring of Trivest bought Bristol Heights also in Austin.
In overall CMBS delinquencies, an additional 20 retail loans totaling $71.6 million were added to the loan delinquency index in September 2008. Retail delinquencies comprise 17.7% of all delinquent loans, and continue to consist primarily of small loans collateralized by strip centers and older community and power centers competing with newer comparable properties.
Despite the economic environment for businesses, office delinquencies have remained relatively low, with only 0.27% of all office loans delinquent. Office properties typically benefit from medium- to long-term leases that provide a degree of insulation from market downturns.
Conversely, hotel properties have greater exposure to economic conditions due to daily resetting of rates and, in some cases, limited advance bookings. Fitch expects hotels will show a faster decline as consumers cut back on leisure travel while business travel also slows. To date, hotel revenue per available room (RevPAR) has been supported by foreign tourism, but this may decline if foreign currencies lose their relative strength. As of September, hotel loan delinquencies remained low at 0.23% of all outstanding hotel loans.
Milan Properties Amy M. Rubenstein CEO
