City sees more CMBS property value cuts

As rating agencies have slashed the value of bonds tied to securitized commercial real estate loans nationwide, some loan servicers are taking a harder look at the value of their assets and finding they are worth a lot less.

Loan servicers reported more appraisal reductions for New York City properties last month than in the preceding eight months combined, data from mortgage tracking firm Trepp showed.

The firms that manage troubled loans in commercial mortgage-backed securities, known as special servicers, reported in September appraisal reductions for 11 properties, reflecting a total reduction of $150 million that month, the firm reported.

In the previous eight months, there were only three properties that showed a total reduction in value of $15 million; and there were no appraisal reductions published in the first eight months of 2008, Trepp reported.

The largest loan to see its value cut was the Riverton Houses, which was reappraised at $108 million, 68 percent below its original securitized value, The Real Deal reported last month.

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But that was just one of many, the data showed. The other properties that saw their values fall in September were the Rocket Lofts, at 98-106 South 4th Street in Brooklyn, which declined 35 percent to $25.7 million; and the Core Club retail condominium at 60 East 55th Street, which lost 56 percent, Trepp figures showed.

Charles Cecil, partner at Opin Partners, an investment advisory firm, said special servicers are conducting more appraisals as a response to the downgrades of CMBS bonds by rating agencies, in an environment where real estate loan performance is deteriorating and loans will be difficult to refinance.

In August, Fitch Ratings downgraded several classes of bonds tied to the Stuyvesant Town and Peter Cooper Village loan, which was packaged into a CMBS pool.

“The downgrades, they put the loan servicers in a peculiar position,” Cecil said. The lower ratings force special servicers to ask themselves: “‘We’ve got a bundle of loans in CMBS, and maybe we need to look at what is going on there. Maybe we are getting indicators that the value might not be what it used to be.'”

So to protect themselves, the loan servicers have the appraisals done, he said. He expected more in the coming months.

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