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Trepp: Fewer CMBS Loan Dispositions Taking Losses

NEW YORK — Some $91.4 billion in CMBS loans have been prepaid, paid on time, paid late or disposed with a loss over the past year, according to a new national market snapshot prepared by research firm Trepp.

Trepp’s research encompasses U.S. conduit, large loan and single asset/borrower CMBS deals.

Nearly 55 percent of these loans fell into the prepay category as borrowers looked to lock in low interest rates and take advantage of property values, Trepp says. Another 25 percent paid their loans on time and 8 percent paid after maturity, often just a few months after the note came due.

Nearly 12 percent, or $11.3 billion, Trepp says, in CMBS loans took losses at an average loss rate of 41 percent.

Trepp’s study found that retail loans exhibited the highest loss severity, at 53 percent, and the second highest volume of loans disposed with losses. Office loans were first in volume, with $4.4 billion taking losses at an average severity of 38 percent.

Trepp-CMBS-Disposed-Loan-Trends-August-2015-1

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Compared to Trepp’s study from a year ago, the proportion of total CMBS dispositions taking losses has fallen 10 percentage points, down from 22 percent in the year ending in March 2014.

Prepays and on-time payoffs have also increased 10 percentage points each since the last study.

According to Trepp, distressed loans are making up less and less of the total market as special servicers have continued to work out troubled loans.

In addition, 2015 marked the beginning of the wall of maturities, increasing the total pool of loan disposals as the year progresses. Persistent low interest rates and improving property fundamentals, Trepp says, have helped borrowers prepay or defease despite the monetary penalties involved.

When interest rates do eventually rise, the study finds, more marginally performing maturity loans may end up in the loss or paid post-maturity categories.

— Scott Reid

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