Continued signs of retail weakness contributed to a 13 basis point (bp) increase in delinquencies, as the Fitch Ratings U.S. CMBS loan delinquency index rose to 0.64% in November 2008. The increase is consistent with Fitch's expectation that delinquencies will continue to rise, reaching approximately 2% by year-end 2009.

"Fitch anticipates that the deepening recession will lead to declining fundamentals across property types for 2009," said Managing Director and U.S. CMBS group head Susan Merrick. "However, performance deterioration corresponding to retail and hotel properties continues to be of greatest concern going forward, due to those sectors' heavy dependence on consumer spending and confidence, which have fallen off sharply in recent months."

29 retail loans totaling approximately $397 million became newly delinquent in November, resulting in a 64% net increase for the sector. Of the 29 loans, 10 were greater than $10 million in size, compared to an average loan size of $5.8 million for the overall index. Most notably, the new delinquencies included a $137.2 million portfolio loan collateralized by two mall properties and a $73.6 million portfolio loan secured by four anchored retail properties, both of which corresponded to the same loan sponsor: The Lightstone Group. Fitch expects that additional sponsor concentrations will emerge within the index next year, as those borrowers with highly leveraged loans find it increasingly difficult to meet debt service obligations while rent and vacancy levels deteriorate across their respective portfolios.

"The November defaults underscored the increasing impact of significantly worsened economic conditions on commercial real estate performance," said Merrick. She added that, "Unlike previous retail delinquencies year-to-date, which were typically smaller in size and frequently attributable to maturity default, last month's defaults came primarily as a result of performance declines."

Fitch anticipates that following a weak holiday season, additional retailer bankruptcies and consolidations will lead to a more challenging environment in 2009. Hotel fundamentals are also expected to decline, as both leisure and business travel slow. As of November, 0.63% of all retail loans and 0.48% of all hotel loans rated by Fitch were 60 days or more past due.

The loan delinquency index measures loans that are at least 60 days delinquent within the universe of all Fitch-rated transactions, which consists of 475 transactions totaling $548.1 billion.