Everyone in the real estate development industry are trying to read the tea-leaves. Will there be disaster or can the unthinkable be avoided?

With more commercial mortgage-backed securities (CMBS) loans on the verge of default this Fall 2010, Special Servicers are being forced to accelerate these loans through the Real Estate Owned (REO) process to avoid building a shadow inventory similar to the one in residential. Here are the facts that we all have to contend with:

• Eight (8)  — 5 year, interest-only loans in CMBS portfolios that hold balances greater than $20m  — are likely to default once they mature in August 2010.

• The loans are proving difficult to refinance in the current market environment due to a lack of liquidity, and it’s raising the likelihood of a special servicing transfer for a modification or extension, according to Fitch.

• In August 2010, Fitch expects 115 loans worth $1.3bn in balances to fall into special servicing and more to come through the rest of 2010

• Peaking defaults are expected in October 2010 at 181 loans at $2.1bn

• The total loans expected to fall into special servicing is anticipated to hit more than 772 loans worth $7.8bn.

Analysts at Deutsche Bank found that the number of new transfers into special servicing will continue to outpace commercial loan workouts. But once properties are ready for liquidation, valuations on commercial real estate are missing the mark. More recent appraisals are needed on these properties to narrow the gap between liquidation expenses and proceeds.The analysts projected an 18% delinquency rate on CMBS. Since the beginning of 2010, the balance of loans at least 90-days delinquent has increased every single month.Some experts believe that the implications for special servicers are potentially dire: if they wait too long to foreclose or restructure loans, the number of loans in their portfolios will continue to build, so even when they finally resolve an asset it might not even make a dent.

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Posted in Real Estate Owned, CMBS, CMBX, Commercial Real Estate | One Comment