--Samantha Rowan
The number of securitized U.S. commercial mortgage loans experiencing substantial losses is expected to rise quickly as market fundamentals continue to deteriorate. According to research from Trepp, there are about 24 loans that could see appraisal reductions of more than 80% of the current loan balance, said Manus Clancy, managing director. Trepp also found that in June, the average loss severity on securitized loans rose from an average in the high 40% range to the mid-50% range, he added, cautioning that it was too early to call this level of loss severity a trend.
According to Trepp, there have been 221 CMBS loans with an average loss of more than 90%. By sector, multifamily had the most loans (90) and the greatest loss percentage (105%). Not surprisingly, 73 of the loans came from deals completed in 2005-2007, which Clancy pointed out was a short time frame to realize losses. “The bulk of the remaining loans represents adverse selection from 1997-2001,” he added, noting that these are seven to 10-year loans that could not be refinanced given poor fundamentals and current market conditions.
A case in point is a $48.4 million loan that was part of GSMS 2007-GG10. The loan’s collateral is comprised of 11 hotels totaling 2,200 rooms in seven states, eight of which operated as Holiday Inns. The loan was transferred to the special servicer in April 2008 for imminent default. The special servicer foreclosed on properties and to date, has sold eight of them. At the time of the securitization, the portfolio was appraised at about $73 million but earlier this year, the appraised value had dropped to about $9.6 million and the loan is....