While new CMBS issues are the rage with investors, legacy CMBS is still a challenge for subordinate bondholders that continue to take it on the chin. On Thursday, March 22, Moody’s reported that the weighted-average loss severity for commercial mortgage-backed security loans liquidated in the fourth quarter increased 130 basis points (BP) to 41.0%, the highest since first-quarter 2010.
For the five major property types, loans backed by hotel properties [have] the highest weighted-average loss severity at 46.2%, while loans backed by office properties have the lowest weighted-average loss severity at 36.4%, according to Moody’s fourth-quarter Loss Severities report. At 45.1% loss severity, the retail sector’s loss severities ranked second, followed by multifamily at 39.2% and industrial at 38.0%.
The report said $14.6 billion of CMBS loans were liquidated between January 1 and December 15, 2011, a $4.1-billion increase from a year ago.
“The three vintages with the highest loss severities are 2008, 2007 and 2006 at 55.5%, 51.6% and 50.8%, respectively,” according to the Moody’s report. “These vintages comprise 57.1% of CMBS collateral and 71.1% of delinquent loans. The 2005, 2006 and 2007 vintages are ultimately expected to experience aggregate losses of 6.9%-12.3% of the total balance at issuance, with most of the losses yet to be realized as the aggregate loss for those vintages is below 2.5%.”