Fitch Ratings said this morning focused on another sign of a potential turnaround in U.S. commercial real estate (CRE) — the falling number of CMBS loans in special servicing.
The rating agency said that after reaching a high-water mark of $92 billion in June 2010, special servicers are still working through underperforming loans in the market. However, the balance dropped to $80.5 billion through June 2012.
Loans are also spending an increased amount of time in special servicing. The number of months in special servicing has risen to more than 18 months as of June 2012. This makes up a significant change from just under 11 months as of June 2010, the rating agency said.
"After a large number of CMBS loans were worked out last year, special servicers are now grappling with the more challenging assets that will take longer to resolve," said Managing Director Stephanie Petosa. "These loans are usually larger, complicated loans which often are not the best candidates for liquidation."
This would mean that smaller CMBS loans will likely be the first to be liquidated, a trend that the agency thinks will continue. Out of the $105.5 billion resolved since 2010, less than half by balance (46%) have been liquidated. By count, the number of liquidated loans is considerably more or is at 71% of the 7,074 loans have been liquidated, Fitch said.