CMBS Delinquency Rate Reverses Course

The commercial mortgage-backed-securities delinquency rate fell last month for the first time since the first-quarter–though late-pays on older vintages continue to rise, reported Fitch Ratings, New York.

Fitch said loan delinquencies declined by five basis points in August to 3.15 percent. Portfolio runoff exceeded $8 billion; more than doubling the month’s $4 billion new issuance volume, which lowered the index denominator. 

Trepp, New York, reported that the reversal represents the first delinquency decrease since February.

“The pause in the upward momentum of the delinquency rate is a positive sign for investors,” said Manus Clancy, Senior Managing Director at Trepp. 

With about 18 months to go until the loans representing the “wall of maturities” will be fully digested, Clancy said he remains “cautiously optimistic that losses on these 2006 and 2007 notes will come in at the low end of expectations.”

Fitch noted that while the overall delinquency rate declined, CMBS 1.0 delinquencies have increased since early 2016 and now approach 11 percent. More than half of outstanding CMBS 1.0 delinquencies are REO assets, with an average aging nearing 24 months. 

Fitch said it maintains a “stable” outlook on nearly 90 percent of its U.S. CMBS portfolio by balance. Most of the remaining bonds are considered distressed (7 percent), have a “negative” outlook (3 percent) or a “positive” outlook (1 percent).

Trepp Analyst Sean Barrie said $1.25 billion in CMBS loans became delinquent last month–down dramatically from July’s $1.8 billion figure. The largest newly delinquent loans included the CNL/Welsh Portfolio, backed by 13 office and industrial properties totaling nearly 2.4 million square feet. The $103.2 million portfolio was listed as non-performing beyond maturity for the first time last month. 

“The second-largest loan that became newly delinquent is the nearly $70 million note behind the [Chesapeake, Va.] Greenbrier Mall,” Barrie said. The loan transferred to special servicing in June after the borrower announced it would not be able to pay off the debt in full by the August maturity date.