Fitch: U.S. CMBS Loan Loss Severity Falls in 2014

NEW YORK--(BUSINESS WIRE)-- Link to Fitch Ratings' Report: U.S. CMBS Loss Study: 2014 (Average Loss Severity Drops)http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=865109

U.S. CMBS loss severities are declining year-over year, though total losses are on the rise due in part to fewer modifications by special servicers in 2014, according to Fitch Ratings in a new report.

Average U.S. CMBS loss severities saw a sizeable year-over-year decline to 44.8% last year from 51.2% in 2013. Although loss severities have declined, more loans are being resolved with losses, according to Senior Director Karen Trebach. 'CMBS loans were modified and returned to the master servicer earlier on in the recovery cycle, which delayed realized losses,' said Trebach. 'Now that special servicers are biased to resolve the loans rather than modify, total CMBS losses are rising rather than being postponed.' Given the rising tide of commercial real estate values and persistent low interest rates, loss severities have fallen from earlier on in the cycle.

In 2014, $10 billion of loans were disposed of for a loss greater than 1.5% compared with $7.7 billion in 2013, an increase of 30%. However, total resolved loans in 2014 by number and dollar amount fell slightly - by 5.2% and 3.7%, respectively, with most of those resolutions coming from the 2005-2007 peak vintages. Fitch expects 2015 resolutions to remain fairly constant and average loss severities to be stable relative to those seen in 2014.

From a property type standpoint, office led loan resolutions last year, with nearly $5 billion resolved in 2014 compared with $2.5 billion in 2013. The average loss severity for office loans dropped to 45.3% from 48.5% and includes two large office loan resolutions that each resulted in over $200 million in losses. Of the major property types, retail once again had the highest average loss severity at 52.1%, but it improved significantly from 2013 when it was 62.1%.

'U.S. CMBS Loss Study: 2014' is available at 'www.fitchratings.com' or by clicking on the above link.

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

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Fitch Ratings
Karen Trebach
Senior Director
+1-212-908-0215
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY, 10004
or
Mary MacNeill
Managing Director
+1-212-908-0785
or
Media Relations
Sandro Scenga, +1 212-908-0278
[email protected]

Source: Fitch Ratings

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