Pedestrians pass commercial real estate in Manhattan.
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Insurance breaches in commercial mortgage-backed securities last month had their biggest one-month increase since Fitch Ratings began tracking the metric nearly 16 years ago.
The crime rate reached 3.59% in June, up from 1
This may not be surprising given the enormous economic impact of the coronavirus pandemic, but the number is still remarkable. And this is just the beginning. Fitch analysts estimate that the impact of the coronavirus pandemic will lead to a crime rate of between 8.25% and 8.75% at the end of the third quarter of this year.
“Criminal acts are affected because they can have a negative impact on property valuations, which can ultimately lead to losses for CMBS investors,” said Melissa Che, Fitch’s senior director, CMBS.
CMBS investors tend to be large institutional investors, such as pension funds, banks, insurance companies and funds.
Short-term 30-day criminals are now becoming 60-day criminals at a much faster rate, and it is expected to continue this summer.
Some sectors outperform others. Fitch divides the following CMBS crime rate:
- Hotels: 11.49% (from 2% in May)
- Retail: 7.86% (from 3.82%)
- Mixed use: 4.17% (from 0.95%)
- Office: 1.92% (from 1.39%)
- Industry: 0.67% (from 0.28%)
- Multifamily: 0.59% (from 0.41%)
Hotel and retail loans accounted for 49% ($ 7.7 billion) and 34% ($ 5.4 billion) of total 30-day criminals, respectively. If they all roll to 60 days of criminals, it would put them over their Great Recession peaks.
When commercial loans are in trouble, they are transferred to a special service to endure or repay plans. During the three months from March to May, 439 commercial mortgage loans, or $ 21 billion, went to special services against 674 loans, or $ 9 billion, for the entire 2019, according to Fitch. In comparison, only 34 CMBS loans in the two months before the pandemic went to special services.
“The borrower can work with the service to change the loan, but if the borrower is too far underwater on the loan, they can return the keys,” Che said.