Hotel Term Defaults Push U.S. CMBS Delinquencies 54 bps Higher 

NEW YORK-- October 12, 2009 --The reprieve is over for U.S. CMBS as delinquencies resumed their upward trajectory to end the month at 3.58%, according to the latest Loan Delinquency Index results from Fitch Ratings. The hotel sector now leads as the property type with the largest proportion of delinquencies at 5.83%. 
 

Commercial Mortgage Backed Securities (CMBS) are a collection of single mortgage loans brought together into one �securitized� pool, then transferred to a trust. The trust issues a series of bonds that are sold to investors.

'The recent surge in hotel defaults is consistent with Fitch's view that hotel property values will decline by as much as 50% from peak levels,' said Managing Director and U.S. CMBS group head Susan Merrick. 'While budget hotels have fared best during the downturn, continued pressure on the luxury, resort, and gaming sub-sectors will likely push lodging delinquencies to approximately double that of the other property types.' 

Newly delinquent hotel loans in September included 26 loans totaling $1.1 billion, of which 92% by balance defaulted during the loan term. The largest of the new defaults was a $587.7 million note corresponding to the $4.1 billion Extended Stay America portfolio loan, collateralized by 681 financed and leased hotels located across 42 states. The borrower filed for chapter 11 bankruptcy protection on June 15, 2009, and court-ordered adequate protection payments have been remitted since approval of the cash collateral order. Similar to loan status classifications made at the outset of the General Growth Properties bankruptcy, Fitch anticipates that the loan may be re-classified as 'current' in future remittances; however, a potential correction of the loan is unlikely to reverse the rising CMBS and hotel-specific delinquency rates. 

September hotel delinquencies also included the $207.9 million Resorts International - Casino Portfolio loan, comprised of three hotel and gaming properties located across two states. The loan became delinquent due to a significant decline in cash flow at the properties. Though it is classified as a mixed-use property due to a land component in its collateral, the declining performance and default on the $192.5 million Maui Prince Resort also exemplify weakness in hotel performance fundamentals - particularly in those loans underwritten to a stabilized cash flow at issuance. 

For the month of September, recent-vintage loan defaults were instrumental in pushing the index higher. Loans securitized in 2007 accounted for approximately 51% of all new delinquencies. Registering a month-over-month increase of 35%, 2007 vintage loans now under-perform the index, with a vintage-specific delinquency rate of 3.61%, compared to 2.68% in August. 

Because certain property types are more prevalent in CMBS transactions and comprise a disproportionate percentage of the universe of rated loans, relative performance by property type is best measured on a sector-specific basis. When ranked by delinquencies within their individual property types, the hotel sector last month surpassed multifamily with the highest percentage of late pays, at 5.83% versus 5.72%. Delinquency rates within the retail, industrial, and office sectors are as follows: 

--Retail: 3.65%; 
--Industrial: 2.96%; 
--Office: 1.97%. 

By dollar balance, retail loans continued to lead the index with $4.9 billion of delinquent loans, compared to $4.3 billion the month prior. The delinquency volume for multifamily loans rose only slightly to $3.9 billion from $3.7 billion, while hotel loans posted a 53.9% increase to end the month at a total volume of $3.0 billion. Loans collateralized by office properties comprise $2.9 billion of the total, while industrial loans ended the month with $719 million of delinquencies, a 22.6% month-over-month increase. 

Fitch's delinquency index includes 2,092 loans totaling $16.6 billion that are at least 60 days delinquent or in foreclosure. The Index excludes Fitch-rated loans that are 30 to 59 days delinquent, which currently total $3 billion, compared to $3.6 billion one month prior. The Fitch rated universe of loans consists of approximately 42,000 loans comprising $465 billion 

Additional information regarding delinquencies by vintage and market sector is available in Fitch's Oct. 9 special report 'Fitch U.S. CMBS VintageView', available at 'www.fitchratings.com' under the following headers:  Sectors then Structured Finance then CMBS then Research 

Additional information is available at 'www.fitchratings.com' 

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