Fitch: U.S. CMBS Recovery Rates Jump as Market Strengthens

Recovery rates for Fitch-rated CMBS liquidated loans jumped to 75% in 3Q13, while the number of loans being transferred into special servicing hit a five-year low, according to Fitch Ratings. A continued strengthening of the CMBS market and improvements in special servicing are driving the improvements in recovery prospects, but the metrics could reverse if the resolution of some specially serviced assets is delayed or interest rates rise more quickly than anticipated.

The improvement in recoveries is attributable to increased refinancing activities in the commercial real estate market and advances in the overall economy. The slow decline in the unemployment rate and overall increases in business activity have contributed to the jump in recovery rates for CMBS.

Special servicers are also now better able to identify and execute resolutions. In 2010, they began modifying their staff so the number and type of staff matched the complexities of the resolutions.

However, the reversal of these trends is possible if the resolution of several large assets overseen by CWCapital, LNR Property and C-III Capital Partner are slowed by litigation or choppy markets.

We expect the positive momentum of the overall U.S. CMBS market, which began in 2010, to continue this year. However, overall, the market remains vulnerable to a rapid rise in interest rates that could lead to negative ramifications on specially serviced assets.

The recovery rate for CMBS liquidated loans jumped to 75.2% for 3Q13, compared with 60.5% in 2Q13. Twenty-three liquidated loans had 85% or greater recovery, 16 of which recovered at 100%. $7.7 billion in assets transferred out of special servicing during 3Q13, while $2.2 billion transferred in, the lowest amount of loans transferring into special servicing in five years. Overall, the volume of loans in special servicing fell to $52 billion as of Sept. 30.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

Applicable Criteria and Related Research:

CMBS Special Servicing Index - U.S.A.

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=727316

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