CREL CDO Delinquencies Down, Managers Take a Loss

Delinquencies for U.S. commercial real estate CDOs (CREL CDOs) fell 33 basis points to 2.8% for November 2008 from 3.13% in October 2008, the first decline since July, Fitch Ratings said.  

Fitch rates 35 CREL CDOs encompassing approximately 1,100 loans and 370 rated securities/assets with a balance of $23.8 billion.

Asset managers reported 45 new loan extensions this past month compared with  35 in October. Fitch said that it anticipates an average of 40 extensions per month, or 3.5% by number of loans in the CREL CDO universe, because of the short-term nature of the loans in CREL pools.

Whole loans and A-notes comprise 88% of the commercial real estate CDO delinquency index (CREL DI) and almost 48% of the loans in the CREL DI are collateralized by multifamily properties.  The rating agency said delinquency risk is greatest in loans backed by hotel and retail properties. These property types make up over 25% of the total universe of loans in Fitch - rated CREL CDOs, the rating agency said.

The CREL DI includes loans that are 60 days or longer delinquent, matured balloon loans, and the current month's repurchased assets.

Meanwhile, Fitch also noted that asset managers have been trading credit risk assets out of CDOs at a loss. In November, an asset manager sold a recently downgraded real estate bank loan out of a CDO at 26% of the par amount. However, the impact on the transaction’s credit enhancement was minimal as the asset manager had also contributed better performing assets, which were purchased at discounts to par.