2003 CMBS delinquency growth eclipses 2002 levels.


ACCORDING TO NEW YORK-BASED STANDARD & Poor's (S & P's) CMBS Quarterly Insights: Third-Quarter 2003 report, 2003 delinquency growth eclipsed 2002 levels. Commercial mortgage-backed securities (CMBS) delinquencies totaled $3.59 billion at the end of third-quarter 2003, an increase of 45 percent since year-end 2002. At this pace, according to S & P, the growth in outstanding delinquencies in 2003 will significantly outpace that of 2002 levels. In comparison, in 2002 delinquencies increased by 15 percent from 2001 levels.

All property sectors contributed to the 2003 increase, with office and multifamily eclipsing all other property sectors, according to S & P. Through Sept. 30, the amount-delinquent increase was 178 percent for the office sector, 70 percent for multifamily, 30 percent for retail, 22 percent for lodging and 11 percent for health care. Comparing the third quarter's delinquency increase to the second quarter, office and multifamily were ahead of the others at 31 percent and 21 percent, respectively. Lodging was the only property type to experience a decline in the amount delinquent in the third quarter, as more loans were resolved than became current.

Although the office sector had the greatest net delinquency amount increase in the third quarter (primarily due to a lower amount of loans getting resolved), it trailed retail loans that became delinquent (new delinquencies). New retail delinquencies, which totaled $232.2 million of principal balance, represented a 33 percent increase over the amount delinquent at the beginning of the quarter. Thirty-seven retail loans turned delinquent in the quarter. The retail sector was also active in the amount of loans that were resolved either by becoming current, through pay-offs or liquidations. During the quarter, retail loans were resolved at about double the rate of office loans.

In total, new delinquencies in the third quarter outpaced resolved delinquencies by a 1.65:1 margin. This is about the same pace as in the second quarter. The health-care sector had the greatest net change in this comparison (5.77:1), followed by office properties (3.61:1). As a percentage of principal balance, 17 percent of the total delinquencies that existed at the beginning of the quarter were resolved by becoming current, paying off or liquidating.

S & P's third-quarter U.S. CMBS delinquency rate was 1.79 percent based on $200 billion of CMBS, as compared with 1.69 percent at the end of the second quarter...

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