KBRA Releases Research ? Zeroing in on CMBS High Loss Loans

KBRA releases a report that studies defaulted conduit CMBS loans that experienced high loss severities. The study categorizes high loss loans as having a realized loss greater than or equal to 80% of their securitized balance. The loans were then reviewed by securitization year, property type, market tier, and various metrics to uncover any common characteristics among this distressed loan group. The study population totaled 10,128 loans that were resolved with losses, of which 1,302 (12.9%) were categorized as high loss loans.

Certain themes emerged for these high loss loans, including their securitization during peak issuance years characterized by weaker underwriting, as well as properties that were operational in nature or located in less liquid markets.

Key Takeaways

• More than one-half (57%) were securitized in the 2005-07 vintage years, reflecting these cohorts' relatively weaker underwriting standards.
• In the study, 2011 had the most resolutions with high loss loans (177). The highest loss percentage (25%) occurred in resolution year 2001 amid a recession.
• Of the five major property types, lodging had 158 high loss loans with the largest percentage of high loss loans (15.9%). Holiday Inn branded properties had the most high loss loans (29), followed by Best Western (15) and Comfort Inn (9).

The review of the high loss loans may give guidance as to how and in what circumstances they could occur. However, while the review highlighted some of the high loss loan characteristics, the effects of the COVID-19 pandemic have yet to be fully realized and could influence future results.

Click here to view the report.

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About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU, and the UK, and is designated to provide structured finance ratings in Canada. KBRA's ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.