Commercial mortgages on trouble path may double SP

Rising delinquencies and tight credit may double the number of commercial real estate loans transferred to companies that specialize in troubled assets in the second half of 2008, Standard & Poor's said on Wednesday.

So-called special servicers, which handle loans that either are in default or in risk of defaulting, received "substantially more" assets during the first half of the year than the previous six months, S&P said in a report. The number of bank-owned assets they serviced also rose, S&P said.

"Based on what some special servicers are saying about third-quarter volumes, the number of loans entering special servicing appears to be on pace to increase substantially, and perhaps even double" from the first to second halves of 2008, Michael Merriam, a director at S&P, said in a statement.

Overall, commercial real estate mortgage delinquencies remain low from a historical perspective, said S&P, which tracks loans in commercial mortgage-backed securities.

But commercial loans and related bonds have in many cases taken harder hits than even risky residential mortgages over the past few months as the slowing economy threatens the cash flows that support debt on office buildings, retail stores and apartment buildings.

Tight bank lending and a frozen market for new commercial mortgage-backed securities have also severely limited options for borrowers that need to refinance from costly loans.

Maturing loans are becoming a more common reason for commercial servicers to transfer the assets to a special servicer, S&P said.

The special servicers are concerned that huge volumes of foreclosures of residential properties in the courts could hurt their ability to complete their own legal actions, S&P said. (Reporting by Al Yoon; Editing by James Dalgleish)

http://www.reuters.com/article/marketsNews/idUSN0529840420081105

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Commercial mortgages on trouble path may double SP