new delinquencies. This translated into small gains in each property type excluding office, which saw an increase in its delinquency rate of 10 basis points last month.

Trepp released a separate report this week in which it said that the dollar amount of U.S. fixed-rate commercial mortgages that were liquidated in March increased by 49 percent from February's level, however, the majority of loans with losses have losses of less than 2 percent.

The New York-based provider of commercial mortgage data and analytics says overall loss severity is the lowest it's been since Trepp began reporting.

Earlier this month Trepp reported a higher CMBS delinquency rate for March at 9.42 percent, but the company's analysts echoed Fitch's sentiments that the ratio of past due loans appears to be stabilizing. Trepp says the 3 basis point increase it recorded last month is the smallest gain the company has logged in over two years.

In total, Trepp says 105 loans with a total balance of $1.2 billion were liquidated in March. The losses on those loans were about $216 million representing an average loss severity of 17.8 percent.

That is the lowest loss severity tally that Trepp has seen since the firm started releasing its loss analysis report back in January 2010. The March value is well below the average loss severity of 41.4 percent recorded over the last 15 months.

Trepp says special servicers have been liquidating at a rate of about $901 million per month, so the $1.2 billion in liquidation for March represents an above average reading.

The low loss reading for March was largely a function of the fact that a large number of loans were closed out very close to par, Trepp explained.

In most cases, the company says, these loans were effectively paid off at par but the payment of the 1 percent special servicing fee created a small loss on the loan. In fact, according to Trepp's report, of the 16 largest loans that had losses in March, 14 had losses of 1.1 percent or less.

From dsnews.com

In Louisville, Colorado, it was FirsTier Bank that found regulators at its doors late Friday evening. The FDIC was unable to secure an acquiring institution. The federal agency created the Deposit Insurance National Bank of Louisville, which will remain open until February 28, to allow FirsTier customers time to transfer their accounts.

FirsTier operated three branch locations in Colorado. It had $781.5 million in deposits and assets totaling $722.8 million. This marks the second bank closing in the state in as many weeks; no Colorado banks failed in 2010. FirsTier's closing is expected to cost the FDIC $242.6 million.

First Community Bank in Taos, New Mexico, was also shut down by its state regulator. It operated 38 branches, with $1.94 billion in deposits and $2.31 billion in assets. It was the largest bank to be seized over the weekend and the first in New Mexico this year.

The FDIC brokered a deal with U.S. Bank, headquartered in Minneapolis, Minnesota, to assume all of the deposits of First Community Bank and purchase all of its assets. The federal agency says it will be out $260 million as a result of First Community's failure.

In Camargo, Oklahoma, the First State Bank has been shuttered. It had just a single branch office, with $40.3 million in deposits and assets of $43.5 million.

Bank 7, in Oklahoma City agreed to take over the failed bank's operations and purchase all of its assets. The FDIC estimates that First State Bank's closing will cost its insurance fund $20.1 million. It's the first Oklahoma failure this year.

Evergreen State Bank in Stoughton, Wisconsin, was also closed, marking the state's first failure of the year. Evergreen had four branches, $195.2 million in deposits, and $246.5 million in total assets.

McFarland State Bank in McFarland, Wisconsin, agreed to take over the failed bank's deposits and purchase all of its assets. The FDIC says the Wisconsin bank's closing will cost the agency an estimated $22.8 million.

None of the acquisitions over the weekend included the FDIC's typical loss-share arrangement for the failed bank's loans.

From dsnews.com

But other investor groups are experiencing rates better than seen in the early 1990's when the market was experiencing its last major slump.

"Greater strength in the economy is bringing some stability to commercial mortgage delinquency rates," said Jamie Woodwell, MBA's VP of commercial real estate research.

He continued, "Although weak, the economic recovery is just beginning to be seen in commercial real estate fundamentals and the mortgages they support."

The Q3 delinquency rate for commercial and multifamily mortgage held by banks and thrifts was 2.17 percent lower than the 1991 high of 6.58 percent, coming in at 4.41 percent. The 30 day delinquency rate for loans held in CMBS was a record high at 8.58 percent after experiencing a 0.36 percent increase.

60 day delinquency rate on loans held in life company portfolios decreased 0.07 percent to 0.22 percent, and the 60 day delinquency rate for multifamily loans held or insured by Fannie Mae decreased 0.15 percent to 0.65 percent. For Freddie Mac the rate increased 0.07 percent to 0.35 percent.

The Washington, D.C. based MBA publishes the the Commercial/Multifamily Delinquency Report quarterly.

From dsnews.com

distressed assets, and remaining essentially flat for smaller healthy properties," said Nick Levidy, managing director at the New York-based credit ratings agency and research firm.

Slightly over 25 percent of all sales in August were considered distressed, according to Moody's. This is similar to the yearly average for 2010 where 26 percent of all repeat-sales transactions have been distressed.

Levidy says prior to 2009 there were only a few distressed sales, and the CPPI was driven up by a large number of performing properties. During the course of the downturn, however, the volume of distressed properties has increased, causing an increased weighting of the CPPI towards troubled properties that have had large negative rates of return, Levidy explained.

"This tug-of-war between performing and distressed properties contributes to choppy index results," Moody's said in its report.

Moody's/REAL Commercial Property Indices are based on the repeat sales of the same properties across the U.S. at different points in time. The dollar amount of the repeat sales was slightly higher in August, totaling $1.85 billion, compared to $1.35 billion in July. However, Moody's says the number of repeat sales remains significantly below what it was during the peak.

Moody's noted in its report that commercial real estate prices are currently 19 percent below the Consumer Price Index (CPI) since December 2000. Over time the company's analysts expect the CPPI to revert to a long-term trend line close to that of the CPI.

from dsnews.com

"Many investors were waiting to pounce on the anticipated overflow of underwater and distressed quality assets, but that scenario never quite materialized as expected," said Susan Smith, director of the real estate advisory practice at PricewaterhouseCoopers and editor-in-chief of the survey.

"With the skittish economic recovery, little rent growth, and minimal leasing velocity, a flight to quality is evident among investors. Sellers offering quality commercial real estate for sale are garnering a lot of attention," Smith said.

The report finds that the apartment sector is continuing to lead the recovery with fundamentals having bottomed in most markets where solid improvements in occupancy and demand are being seen.

Even as the U.S. economic recovery signals uncertainty, lodging demand is continuing to grow at a brisk pace, creating cautious optimism for this sector. The report finds that business travelers have returned in many markets and are delivering an important short-term boost to demand. However, the long-term demand growth is somewhat muted by the on-going pressure on room rates.

After 11 consecutive quarters of vacancy increases, the warehouse sector is finally showing signs of recovery, according to the survey. A downward shift in vacancy occurred in the second quarter in this sector, due to improvement in global trading, freight shipments, and manufacturing activity.

As a whole, the office market continues to struggle. Although vacancy rates have improved slightly, job growth and feeble tenant demand remain top concerns, the report notes. Lackluster fundamentals are keeping investors and lenders focused on quality office properties and top-tier markets.

With the fragile economy continuing to hamper consumer spending, the retail sector is showing mixed reviews. While leasing activity remained sluggish in the national mall market during the second quarter, surveyed investors note that the dynamics of the leasing market are stabilizing.

Insurers and private lenders, though, saw better performance from their commercial mortgages. MBA's analysis showed that the 60-plus day delinquency rate on loans held in life insurance company portfolios decreased 0.02 percentage points to 0.29 percent. The 90-plus day delinquency rate on loans held by FDIC-insured banks and thrifts remained unchanged at 4.26 percent.

"Different investor groups lend in different ways and on different types of properties," said Jamie Woodwell, MBA's VP of commercial real estate research. "Those differences are becoming more evident as the economy continues to struggle to work its way out of the recession."

Woodwell went on to explain, "Life insurance companies, Fannie Mae, and Freddie Mac continue to see relatively low delinquency rates on their commercial and multifamily mortgages, the delinquency rate on banks' commercial and multifamily mortgages appears to have reached a plateau, and the delinquency rate for loans in CMBS continued to climb during the period."

According to Woodwell, performance across all investor groups will continue to depend on economic growth and its ability to generate demand for commercial real estate space.

MBA's analysis looks at commercial and multifamily delinquency rates for five of the largest investor groups: commercial banks and thrifts, CMBS, life insurance companies, Fannie Mae, and Freddie Mac. Together these groups hold more than 80 percent of commercial/multifamily mortgage debt outstanding.

From dsnews.com

Given the amount of liquidity in the market and the ability of lenders to re-price assets at a level that will clear the market, Ken Riggs, chief real estate economist for the CCIM institute, believes the process of refinancing debt will be at a more measured pace than most predict. He said this process will serve as a guiding hand out of the commercial real estate recession.

"I don't see this huge onslaught where large volumes of distressed assets are placed in the market and the supply of properties at distressed levels overwhelms the investment demand side," said Riggs, who is also president and CEO of Chicago-based RERC. "There's equity sitting on the sidelines now, waiting for this to play out."

According to Riggs, the process will be very selective, with some banks and insurance companies taking back properties and leaving them on the balance sheet. He said these properties will be taken to market when the time is right and when the pricing can be property achieved. While Riggs believes this will be a "slow, arduous, and challenging process," he said he doesn't see it as being catastrophic or disruptive to the current recovery.

The CCIM Institute and RERC said the industry is at a stabilization point with commercial property becoming attractive on a relative basis and getting the attention of many diverse investors.

"We are starting to get traction. The recovery is becoming real," Juge said. "While it's still not as attractive as it was in 2006 and 2007, commercial real estate came into this recession in better shape than it had in the past with less building than in other downturns. If you put that in context, there is equity that wants to invest in the market. It's a question of re-pricing."

From dsnews.com

fully materialize, further contributing to this sense of market flux."

Surveyed investors comment that financing has become more readily available for the right borrower seeking quality assets in better markets. However, the report finds that for second-tier markets and non-core assets, debt availability and buyer interest are very limited. Until further stability takes hold in the commercial real estate sector, the investment market is likely to remain split along these lines.

"There is a tremendous amount of capital targeting institutional-grade, quality assets," Smith noted. "In fact, survey participants cited that strong competition among well-capitalized buyers is helping to elevate sale prices and lower overall cap rates for many prime properties."

Smith also pointed out that distressed trades have been nominal lately, which means most investors are steering clear of "junk" and focusing only on core assets.

The report finds that despite encouraging economic data reports for retail sales and job growth, the retail sector continues to struggle and present challenges to property owners.

In the office sector, overall vacancy rates are beginning to show some signs of improvement. Nevertheless, surveyed investors envision a slow rebound for the office sector, where a full recovery will lag behind that of the U.S. economy.

In the industrial sector, the report notes that market conditions continue to soften, but at a slower pace than in months past. As a result, quality warehouse assets are seeing multiple bids and strong interest from perspective buyers.

The report also finds that the apartment sector is continuing to lead the recovery with investment appetite for high-quality assets in first-tier markets leading to an uptick in transactions nationally. However, surveyed investors said that while rental rates have stabilized, rent declines from the previous 24 months are still working through apartment rent rolls.

From dsnews.com

is up by 192 basis points. By contrast, at its cyclical low in the first half of 2006, the commercial mortgage default rate was 0.58 percent.

As of the first quarter of this year, $45.5 billion of bank-held commercial mortgages were in default, according to Real Capital's tally.

The research firm segregates multifamily apartment loans from the broader category of commercial mortgages, which includes hotel, office, retail, and industrial. In the first quarter of this year, the default rate on multifamily mortgages held by banks hit 4.62 percent, up from 4.41 percent the previous quarter, and the highest level on record going back to 1992. In total, $9.9 billion of bank-held multifamily mortgages were in default last quarter.

A separate study released this week by Trepp LLC shows that the share of past due loans held by investors in commercial mortgage-backed securities (CMBS), including those already in foreclosure and REO, jumped 40 basis points in May to 8.42 percent - the highest in the history of the CMBS industry.

For seven of the last eight months, the rate of increase in CMBS delinquencies has been between 37 and 49 basis points in Trepp's study. The only exception was February of this year when the delinquency rate nudged up only 22 basis points.

To put the delinquent CMBS universe into perspective, Trepp says that just six months ago, the delinquency rate was 5.65 percent. One year ago, it was 2.77 percent.

The risk assessment and analytics firm notes that results were mixed across the varying property types. In May, the industrial sector was the only one to post a decline in CMBS delinquencies, dropping from 3.44 percent in April to 3.34 percent. Hotel delinquencies claimed the biggest jump, up 129 basis points to top out above 18 percent.

From dsnews.com

Firms are adding employees with previous workout experience at the senior level, and adding employees with some level of real estate knowledge at the junior level, Fitch says. They are also freeing up experienced asset managers from the time consuming administrative tasks associated with workouts to allow them to keep their focus on the real estate, according to Fitch.

The proliferation has also given rise to creative workout strategies for commercial mortgages.

"Special servicers are now engaging in bulk note sales, modifications into A/B notes, and forbearance," explained Stephanie Petosa, a managing director at Fitch.

However, Petosa noted that "the majority of the loan workouts remain within the more traditional realm of extensions, modifications, and foreclosures."

Ftich says, though, that there is no standard workout strategy tied to a specific servicer, property type, or location. Special servicers approach each asset on a case by case basis, the ratings agency said.

Fitch recently reported that during the first three months of this year, 487 CMBS loans defaulted totaling $8.43 billion.

From dsnews.com

Cap rates are still above the long-term average across the sectors, but improved sentiment has boosted capital coming back into the market, the research firm says, with returning investors starting to compete on pricing more aggressively due to a limited supply of prime stock.

Beneath the headline total return figures sit slowing market value depreciation and resilient income returns for nearly every property type.

The biggest improvement in capital value growth was in the office sector, which delivered -0.7 percent compared to -3.7 percent the previous quarter. Multifamily followed closely with capital growth of 0.4 percent compared to -2.4 percent in Q4 2009.

Simon Fairchild, managing director of IPD North America, said, "While most indications are that the worst of the write-downs are behind investors, uncertainties persist on the medium term health of the broader economy."

Fairchild noted that preliminary data from the Bureau of Economic Analysis indicated that Q1 GDP increased at an annual rate of 3.2 percent, but he says if economists' predictions of a sluggish recovery are accurate then so too will be the pace of capital appreciation.

From dsnews.com