CMBS Delinquency Rates Continue to Fall
Delinquency rates for loans packaged in commercial mortgage-backed securities fell throughout the second half of 2017, said Morningstar Credit Ratings LLC, New York, which expects the declining trend to continue in 2018 as servicers continue to wind down their legacy portfolios and originations outpace new problem loans.
Morningstar reported the CMBS delinquency rate improved for the fifth consecutive month, falling by 14 basis points to 2.54%.
The report also noted new issuance activity remains “robust,” with the balance of the universe of securitized commercial mortgages rising for the fourth straight month, hitting an eight-year high of $822.88 billion.
Morningstar said the CMBS delinquent unpaid balance dipped by 3.4% to a seven-year low of $20.90 billion, down $740.5 million from the prior month, and down $2.60 billion, or 11.1%, from the year-earlier period. Meanwhile, volume of newly delinquent loans jumped above $1.80 billion after falling below $1.00 billion last month for the first time since July 2014; however, this includes five large loans with a combined balance of more than $1.00 billion that Morningstar said may be reported delinquent in error.
“While newly delinquent loans include five loans with a combined balance of more than $1.00 billion, we believe all five loans should return to current status shortly,” the report said. “Four of these loans comprise the $550.0 million FREMF 2017-KSKY deal, and we believe the delinquency is a reporting error based on the remittance report, which notes the loans are current. Additionally, the reported delinquency for the $505.6 million Toys ‘R’ Us loan, in the single-loan TRU 2016-TOYS deal, appears to be a technical issue. The payment has been received but is being held by the servicer pending court approval to apply the funds. The loan was transferred to special servicing in September after Toys ‘R’ Us, Inc. filed for Chapter 11 bankruptcy protection. Toys ‘R’ Us indicated it will remain fully operational during the bankruptcy process, which we view positively, but we do not rule out the possibility of future asset sales or lease rejections.”
The report pointed out while legacy CMBS now accounts for less than 6.0% of the CMBS universe, delinquencies from deals issued before 2010 represent 87.1% of all delinquencies by balance.
The report also noted the special-servicing rate fell for the fourth consecutive month, sliding to 3.01%, down 7 basis points from October. However, since the beginning of the year, the volume of specially serviced post-crisis loans has more than doubled to $3.52 billion, up from $1.53 billion. Liquidation volume and the weighted average loss severity both jumped in November, as many office loans took heavy losses.
