Fitch, Morningstar: CMBS Delinquencies Tick Up Again
The U.S. commercial mortgage-backed securities delinquency rate rose in May for the second month, reported Fitch Ratings, New York.
Loan delinquencies increased six basis points in May to 2.98 percent, Fitch said. The dollar balance of late-pays increased $173 million to $11.22 billion.
“The increase was largely driven by the addition of three loans over $50 million into the [delinquent] index, a large mixed-use loan and two large retail portfolio loans,” said Fitch Managing Director Mary MacNeill.
MacNeill said the the $150 million City Place loan represented the largest new delinquency. The loan, secured by a 732,000-square-foot mixed-use property with retail, office and multifamily components in West Palm Beach, Fla., first transferred to the special servicer in April 2010. The largest resolution was the Coventry Mall asset, a 796,000-square-foot regional mall in Pottstown, Pa. The asset became REO in October 2013 after the loan transferred to special servicing in February 2011 and again in December 2012.
Morningstar Credit Ratings, New York, noted that May’s payoff rate for maturing loans “plummeted” to 65.3 percent from 81.7 percent in April “as many of the maturing loans written at the height of the market had difficulty refinancing because they remain overleveraged.”
Morningstar’s May Delinquency Report predicted that the maturity payoff rate will continue to slide and affect the delinquency rate because 2006-vintage loans currently maturing included overly optimistic cash flow projections that never materialized.
Matured loans reported as delinquent in payment status (regarding monthly payments) accounted for 21 percent of May’s total maturity defaults, Morningstar reported, a level not seen in more than two months and nearly double April’s level. The rate for loans 30 days past due posted its largest increase in five months, rising to 2.79 percent from 1.96 percent in April, affected by the declining payoff rate for loans maturing in May.
Fitch further noted that “credit barbelling”–including both high quality and highly leveraged mortgages in the same security–is becoming more commonplace in U.S. CMBS, and said it may place transactions at much greater risk for losses over time.
Eric Rothfeld, Managing Director with Fitch, said barbelling has become more obvious as deal size shrinks. “Barbelling began to surface within Fitch’s loan metrics last year and it is showing up more frequently in 2016,” he said. “A barbell in credit creates more downside risk for a CMBS deal. The higher the expected loss and the greater the number of loans with high expected losses, the larger the potential effect on deal performance.”
Rothfeld said lower leverage among other loans in the pool will not necessarily offset this barbelling risk. “As such, Fitch assigns higher credit enhancement levels at each rating level,” he said.
