Defaults on large loans drove commercial mortgage delinquencies higher last month as the global recession broadened the types of souring debt, according to Fitch Inc.
Payments more than 60 days late on the commercial real estate credits underlying securities rose to 0.88% in December, the ratings company said Tuesday. This was up from 0.64% in November.
The defaults included two loans of more than $100 million, one backed by a retail property in Corona, Calif., and the other by hotels in Hilton Head, S.C., and Tucson, Fitch said. Both borrowers, whose loans were packaged into bonds last year, cited "economic hardship due to market deterioration," the rating agency said.
"What began as weakness in the performance of smaller properties located in tertiary markets now includes larger collateral in secondary and primary markets," Susan Merrick, Fitch's group head of commercial mortgage-backed securities, said in a press release.
The 10-year average default rate is 0.74%, according to Fitch, which expects this measure to reach about 2% by yearend. The rating agency's delinquency index now includes 20 loans with balances of $25 million or more, six of which became overdue in December.
"Highly levered loans on transitional assets that were originated at the height of the market are proving particularly susceptible to performance default," Ms. Merrick said, "as the deepening recession continues to make stabilization according to schedule increasingly unlikely."