September CMBS Delinquency Rate Drops Again

The commercial mortgage-backed securities delinquency rate fell again in September–the third straight month–reported Trepp LLC, New York.

The delinquency rate for U.S. commercial real estate loans in CMBS fell four basis points to end September at 5.40 percent, Trepp Senior Managing Director Manus Clancy said.

“After more than two years, the ‘wave of maturities’ has been reduced to a mere ripple,” Clancy said. “The volume of maturing debt coming due every month has already begun to wane, meaning the rate of delinquent loans should hold steady or recede in the coming months.”

Brian Olasov, Executive Director with Carlton Fields, New York, said the rapid wind-down in legacy CMBS helped the sector turn a corner. “While there will continue to be a trickle of maturity defaults from the small 2008 cohort, the bulk of new defaults will start coming from CMBS 2.0 deals,” he said.

Nearly $1.3 billion in CMBS loans became newly delinquent in September–nearly $200 million more than turned delinquent in August, Trepp reported. But more than $800 million in loans cured in September and nearly $700 million in previously delinquent CMBS resolved with a loss or at par.

The percentage of “seriously delinquent” loans–60-plus days delinquent, in foreclosure, REO or non-performing balloons–fell 11 basis points in September to 5.24 percent, Trepp said.

The industrial sector delinquency rate held steady at a 6.55 percent, Trepp reported. Hotel loans moved up 35 basis points to 3.84 percent while the multifamily delinquency rate inched up nine basis points to 3.00 percent. The office delinquency rate dropped 21 basis points to 7.10 percent and the retail delinquency rate fell six basis points to 6.55 percent.

Olasov noted it generally takes three to four years for riskier loans to start to run into problems. “Even with cleaner collateral from 2.0 deals, an uptick in problems is almost inevitable,” he said. “We also know that in the 2010 to 2012 deals, retail contributed a disproportionate share. This sector will likewise contribute a disproportionate share of the new defaults going forward.”

CMBS loan prices rose slightly in August–the most recent data available–said DebtX, Boston. The estimated price of whole loans securing the CMBS universe increased from 98.2 percent to 98.7 percent, DebtX Managing Director Will Mercer said.

“In August, we saw another modest increase in loan prices resulting from the decrease in U.S. Treasury yields,” Mercer said.

Clancy said the industry will likely look back on the past two years with a sense of relief, “somewhat like the kid at the beach who nervously spots a big wave approaching, but only to see it downgrade to a small swell when it hits land.”