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CRE Finance World, Winter 2012

CMBS Collateral Performance: Inside the Numbers Chart 3 The concentration of delinquent loans varies substantially across Loan Distress Over Time the country. Chart 5 shows a map of the ACLI regions, with the respective delinquency rates superimposed on it. The Mountain Region clearly suffers from the underperformance of Nevada and Arizona. New England continues to be benefit from the strong Boston market. One significant change was registered in the Middle Atlantic region, where the delinquency rate now exceeds the national average. The strength of the Manhattan market, despite its size, is no longer sufficient to offset significant stress outside of New York City. Chart 5 Chart 4 shows the breakdown of the delinquent loan balance into 4 distinct subcategories: (i) 30; (ii) 60, 90 and nonperforming matured balloons; (iii) foreclosures; and (iv) REO. The chart dem- onstrates that we have seen fairly steady monthly inflow of newly delinquent loans (subcategory (i)); moving through the pipeline (ii); and then accumulating at the exit point-stage where the loans or properties are expected to be liquidated. The increase in loan and property sales activities in the CMBS market will, at some point, begin to shrink the size of the foreclosure and REO subcategories, which will be another signal that the Chart 6 shows the trend in loss severity for loans liquidated in 2010 commercial real estate recession is receding on a broad front. (On and 2011. Trepp calculates two sets of loss severities: one set is a side note, the level of delinquent loans in the system, combined aggregated for the entire universe of liquidated loans, and another with the pace of liquidations, means that there will be a continuous – for the subset excluding the loans with realized losses below supply of distressed assets available to distressed investors for at 2%. Our rationale is that loans with losses of 2% are essentially least the next 2 years.) payoffs, with a certain level of fees and expenses not paid by the borrower, but rather recovered from the trust cashflows. In our view, Chart 4 the second, adjusted approach is a more accurate assessment of Delinquency Severity Breakdown potential future losses. Using this approach, Trepp estimates that the average loss severity declined X bps in 2011, although it still remains high. CRE Finance World Winter 2012 64


CRE Finance World, Winter 2012
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