Special servicers were instrumental in curbing U.S. CMBS losses this past year but the current economic uncertainty makes the outlook for 2012 less optimistic, according to Fitch Ratings in its latest annual U.S. CMBS loss study.
Nearly four times as many loans were resolved by special servicers in 2010, with 1,427. Additionally, the average loss severity declined to 53.4% compared to 57% in 2009.
"Special servicers have been increasingly successful selling properties and working with borrowers for discounted loan payoffs," said senior director Britt Johnson. "If the current economic volatility continues, special servicers may struggle to find borrowers capable of obtaining capital for distressed real estate."
According to Fitch, loss severities fell for all major property types except retail. However, Fitch expects the cumulative loss severity in 2011 to continue eclipsing historical averages, which increased to its highest level ever at 42.9% in 2010.
Losses on retail and multifamily loans will remain volatile. Office losses will are also expected to increase beyond historical averages in spite of recent improvements in some regional markets. "With leases set to expire in a weaker economy, office landlords will have to continue lowering rents and paying for tenant improvements and rent concessions," said managing director Mary MacNeill.
Performance on hotel properties has improved in recent months yet they still hold the second highest amount of defaults. MacNeill said there are still many delinquent hotel loans to resolve, although she expected dispositions to slow next year if the lending environment tightens.