Morningstar: CMBS Delinquency Rate Could Increase

The commercial mortgage-backed securities delinquency rate could rise in 2017 due to a “sharp” increase in newly delinquent CMBS loans–many of which will default at or near maturity–said Morningstar Credit Ratings, Chicago. 

CMBS delinquencies fell 43 basis points during 2016 to finish the year at 3.00 percent, Morningstar said. But the volume of newly delinquent loans rose to $1.65 billion in January from $1.33 billion in December. More than half of the newly delinquent loans dated to 2007, nearly double that of the second-largest vintage, 2006-originated loans. 

Office and retail loans, which make up 72.5 percent of the delinquent unpaid balance, remain the weakest by property type, Morningstar reported. 

“We expect Washington, D.C. and Chicago, which have the highest volume of delinquent loans, to remain among the weakest MSAs as suburban spaces in both markets continue to underperform,” Morningstar said. “Compounding the issue, the Chicago MSA is suffering subpar price performance as real estate values in this market continue to lag the national average.”

Morningstar noted that specially serviced loan exposure rose in January for the first time in four months, accelerating by $153.3 million to $28.4 billion.

Trepp, New York, said the so-called “wall of maturities” remains one of the most important storylines the CMBS sector will face this year. “The final year of this 36-month stretch, which commenced at the start of 2015, features over $108.7 billion in CMBS loans that are slated to mature,” Trepp said. “The ‘refinanceability’ of these loans will once again come into question, as over-leveraged loans issued prior to 2008 might not fulfill the credit standards of today’s lender.” 

Trepp said more than $225 billion in CMBS loans paid off in some manner–including disposals with losses-in January. 

More than $111 billion in securitized mortgage debt was liquidated last year, and 8.1 percent of them suffered losses at resolution, Trepp said, noting that 795 loans totaling $25.1 billion are still outstanding based on maturity dates for loans scheduled to pay off during 2016.

Just more than $65 billion in CMBS debt will come due by July, Trepp said. More than 6 percent of that total is currently delinquent and nearly 11 percent is in special servicing. 

Of the $9 billion in CMBS debt scheduled to mature this month, 7.1 percent has fallen into default–60-plus days delinquent, in foreclosure, REO or non-performing balloons–while 15.1 percent transferred to special servicing, Trepp reported.