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Fitch expects CMBS loan defaults to climb in 2016

Fitch Ratings expects loan defaults in commercial mortgage-backed securities (CMBS) to rise in 2016, breaking a string of five consecutive years of declines.

Although many problem loans from the 2005-2007 vintage have already defaulted, a greater volume of loans from this era of the market's last peak are maturing, many of which are highly leveraged. In 2015, the bubble-era loans accounted for 88 percent of the total defaults, Fitch said. The default rate for CMBS loans peaked at 4.1 percent in 2010, and now stands at roughly 40 basis points, Fitch said.

Fitch’s Senior Director Brook Sutherland said defaults declined in 2015 after a good year for the commercial real estate market. Sutherland noted that the issuance volume for new CMBS was “healthy” and provided ample liquidity, and that construction activity was “generally muted.” Commercial analysts have previously said that relatively light levels of new construction have helped lower vacancy rates and strengthen the rental prices of existing properties.

In all, 181 loans defaulted with a balance of $2.7 billion in 2015, Fitch said. That compares to 294 loans totaling $3.9 billion in 2014 and 353 loans totaling $5.4 billion in 2013.

In 2015, loans tied to office properties had the highest percentage of defaults.


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