CMBS Special Servicing Volume Dips in August

The volume of loans in the hands of the CMBS industry’s 17 special servicers declined last month, after increasing for two straight months, and now stands at $40.6 billion, according to Morningstar Credit Ratings.

The decline was driven by the $994 million of liquidations that took place during the month. According to the Horsham, Pa., rating agency, 2,246 loans are now in special servicing. That compares with 2,288 loans, with a balance of $41.1 billion, that were in special servicing in July.

Because the universe of CMBS tracked by Morningstar declined to $621.5 billion from $627.8 billion, the percentage of loans in special servicing remained flat in August, at 6.54 percent.

CWCapital Asset Management, the most-active special servicer, saw the volume of loans it handles shrink by some $340 million, while LNR Partners saw its volume shrink by $230 million. And C-III Asset Management saw a $90 million increase. Most other servicers saw much smaller changes in the volume of loans they handle.

While loans continued to get pushed to special servicing, most had balances of less than $75 million. The biggest to transfer last month was the $69.7 million mortgage against the Indian River Mall & Commons, a 434,577-square-foot retail property in Vero Beach, Fla., that’s owned by an affiliate of Simon Property Group. The loan is securitized through Banc of America Commercial Mortgage Trust, 2005-1, and was transferred to C-III because it’s expected to default upon its November maturity.

C-III also is handling the biggest large-balance loan to be transferred to special servicing in recent weeks: a $122.6 million mortgage against a portfolio of 936,320 sf of office space owned by Investors Real Estate Trust. The Minot, N.D., REIT said it was considering surrendering the portfolio in a deed-inlieu of foreclosure because it’s not likely to be able to refinance the loan when it matures in 2016. The loan, commonly referred to as the IRET Portfolio, was transferred to C-III in late July.

Special-Servicing Rate at 4-Year Low

The special-servicing rate for securitized commercial mortgages dropped sharply again last month, hitting its lowest level in four years.

The proportion of mortgages in the hands of special servicers was 9.35% as of Nov. 30, down 56 bp from a month earlier, according to

Trepp. That key measure of credit quality for commercial MBS loans peaked at 13.65% in February 2012. The rate has been decreasing virtually nonstop for the last year, by an average of 27 bp per month. The improvement reflects a contraction in the volume of loans in special servicing by an average of $1.7 billion per month during the last year.

There were 2,805 loans with a combined balance of $49.6 billion in special servicing at the end of November, down from $52.1 billion a month before. The all-time high for the aggregate balance of loans in special servicing was $89.9 billion in September 2010.

Another factor pushing the special-servicing rate down last month was a fresh batch of CMBS offerings. The overall amount of securitized commercial mortgages outstanding jumped by $5.2 billion in November, to $530.4 billion — the largest monthly increase since before the credit crisis. That figure serves as the denominator when calculating the rate.

Since peaking at almost $800 billion in 2007, the CMBS universe has been shrinking as new deals have failed to keep pace with the runoff of legacy loans. But that decline has slowed this year amid soaring issuance, and the monthly total has now ticked up three times in 2013.