US CMBS delinquencies resumed their upward trajectory to end the month at 3.58%, according to the latest loan delinquency index results from Fitch. The hotel sector now leads as the property type with the largest proportion of delinquencies, at 5.83%.

Fitch md and US CMBS group head Susan Merrick says: "The recent surge in hotel defaults is consistent with Fitch's view that hotel property values will decline by as much as 50% from peak levels. While budget hotels have fared best during the downturn, continued pressure on the luxury, resort and gaming sub-sectors will likely push lodging delinquencies to approximately double that of the other property types."

Newly delinquent hotel loans in September included 26 loans totalling US$1.1bn, of which 92% by balance defaulted during the loan term. The largest of the new defaults was a US$587.7m note corresponding to the US$4.1bn extended stay America portfolio loan, collateralised by 681 financed and leased hotels located across 42 states.

The borrower filed for Chapter 11 bankruptcy protection on 15 June 2009 and court-ordered adequate protection payments have been remitted since approval of the cash collateral order. Similar to loan status classifications made at the outset of the General Growth Properties bankruptcy, Fitch anticipates that the loan may be re-classified as 'current' in future remittances; however, a potential correction of the loan is unlikely to reverse the rising CMBS and hotel-specific delinquency rates.

September hotel delinquencies also included the US$207.9m Resorts International - Casino Portfolio loan, comprised of three hotel and gaming properties located across two states. The loan became delinquent due to a significant decline in cashflow at the properties. Though it is classified as a mixed-use property due to a land component in its collateral, the declining performance and default on the US$192.5m Maui Prince Resort also exemplify weakness in hotel performance fundamentals, according to Fitch - particularly in those loans underwritten to a stabilised cashflow at issuance.

For the month of September, recent-vintage loan defaults were instrumental in pushing the index higher. Loans securitised in 2007 accounted for approximately 51% of all new delinquencies. Registering a month-over-month increase of 35%, 2007 vintage loans now under-perform the index, with a vintage-specific delinquency rate of 3.61%, compared to 2.68% in August.

Because certain property types are more prevalent in CMBS transactions and comprise a disproportionate percentage of the universe of rated loans, relative performance by property type is best measured on a sector-specific basis. When ranked by delinquencies within their individual property types, the hotel sector last month surpassed multifamily with the highest percentage of late pays, at 5.83% versus 5.72%. Delinquency rates within the retail, industrial and office sectors were 3.65%, 2.96% and 1.97% respectively.

By dollar balance, retail loans continued to lead the index with US$4.9bn of delinquent loans, compared to US$4.3bn the month prior. The delinquency volume for multifamily loans rose only slightly to US$3.9bn from US$3.7bn, while hotel loans posted a 53.9% increase to end the month at a total volume of $3.0 billion. Loans collateralised by office properties comprise US$2.9bn of the total, while industrial loans ended the month with US$719m of delinquencies - a 22.6% month-over-month increase.