A report from Fitch Ratings on US commercial mortgage-backed securities loss severities released last week tracked a significant decrease in the overall average loss severity for $2.8 billion of CMBS loans disposed in 2022.
The New York-based agency saw a loss severity of 48.4 percent in 2022, versus a loss severity of 56 percent in 2021. This level is slightly higher than the cumulative historical average loss severity of 47.5 percent. “When considering all resolved loans – with and without losses – the average loss severity was 25.5 percent, also in line with the cumulative historical average,” the report stated.
The report tracked a drop in total US CMBS loan resolutions in 2022, with resolutions dropping to $5.4 billion last year from $15.5 billion in 2021. “Total US CMBS loan resolutions in 2022 dropped to $5.4 billion from $15.5 billion in 2021. Another year since the onset of the pandemic, this sharp decline reflects significantly fewer pandemic-related transfers,” the report stated.
Additionally, about 54.7 percent of the total 2022 loan resolutions by count were resolved without losses or returned to the master servicer. In comparison, this level was 73 percent in 2021.
“While 2022 saw many fewer resolutions and a lower overall severity than in 2021, Fitch projects a reversal of these trends next year,” said Arshia Chatterjee, associate director.
By sector, retail and office saw the highest loss severities in 2022. The report found an average loss severity of 54.6 percent for the 27 retail loans disposed in 2022. “The average loss severity for the 20 office loans that disposed with losses also remained high at 63.9 percent, slightly up from 60.5 percent in 2021,” the report stated.
The agency has a deteriorating asset performance outlook across all property types as it expects net cashflows to decelerate or decline from 2022 levels due to slowing revenue growth and increased expenses. “With increasingly conservative valuations driven by credit tightening and growing macroeconomic headwinds, Fitch anticipates higher losses in 2023,” said Karen Trebach, senior director.
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