CMBS Delinquency Rate Falls Again; Losses at Payoff Increase

The commercial mortgage-backed securities delinquency rate resumed its year-long downward trajectory in November after a very brief uptick in October, reported Trepp, New York.

“The delinquency rate began to fall with consistency after June 2017,” said Trepp Senior Managing Director Manus Clancy. “Fortunately, the fabled ‘Wall of Maturities’ entered its final stages around that time. The rate has now dropped in 15 of the 17 months from July 2017 to November.”

Clancy said the overall delinquency rate for U.S. commercial real estate loans in CMBS now equals 3.33 percent, down nine basis points from October. November’s delinquency reading is 185 basis points lower than a year ago. “The November rate also represents a new post-financial crisis low for the reading,” he said.

CMBS loans disposed with losses increased to $552.4 million in November, but this figure remains below the 12-month moving average disposition total of $607 million, Trepp said. The average loan size rose to $15.8 million last month due to the resolution of several large mixed-use and office notes behind older CMBS 1.0 deals. The 12-month average loan size equaled $14.5 million.

Looking at quarterly figures, Moody’s Investors Service, New York, said 137 loans were liquidated with an aggregate disposition balance of $2.13 billion during the third quarter. The liquidated loans had a weighted-average loss severity of 57.8 percent, down from 66.7 percent for the 106 loans liquidated in the second quarter, but still higher than 42.7 percent for all loans liquidated year to date through September 30.

The 2007 and 2006 vintages remained the largest contributors to the newly added losses, Moody’s noted. Those two CMBS 1.0 vintages accounted for 41.6 percent and 26.0 percent of the total quarterly losses, respectively. 2007-vintage loans liquidated during the quarter had a weighted average loss severity of 54 percent, compared with a 72.8 percent loss severity for 2006-vintage loans.

Moody’s said retail remained the worst-performing property type from a liquidation perspective with a 49.7 percent cumulative loss severity. Six loans secured by troubled malls were liquidated during the third quarter with an aggregate loss of $246.2 million, accounting for just under half of the quarter’s dollar loss from retail properties.