CMBS Report: More Than 2,600 U.S. CMBS Borrowers Seek Coronavirus Relief; Delinquency Reports Mixed

Fitch Ratings, New York, reported more than 2,600 commercial real estate borrowers, representing $49.1 billion of mortgage loans, have sought potential debt relief during the first two weeks of the U.S. coronavirus outbreak.

That includes borrowers in 42 single-asset single-borrower commercial mortgage-backed securities transactions secured by hotel and retail assets. Hotel assets represent 47% of relief inquiries followed by retail assets at 30%. Servicers noted increased inquiries from multifamily and office borrowers during the second week.

Fitch noted while these inquiries are not directly linked to default, 87 CMBS loans totaling $2.8 billion have already transferred to special servicing.

“More material transfers to special servicing are expected in May and June as servicers respond to missed loan payments and additional relief requests,” Fitch said. “The most common relief requests to date include payment forbearance, reallocation of reserves to pay debt service or fund operating expense shortages, and waivers of default for closed businesses. Borrower hardship inquiries cite non-payment notices from tenants and closed businesses due to government restrictions.”

The report said master servicers also received additional debt relief inquiries from 105 multifamily borrowers on Freddie Mac Capital Markets Execution transactions representing $810.2 million in mortgage loans.

Despite these actions, Fitch reported the U.S. CMBS delinquency rate declined in March due to strong new issuance activity and minimal new delinquencies. Loan delinquencies fell four basis points in March to 1.31% from 1.35% in February. Fitch-rated new issuance volume of $13.8 billion from 14 transactions in February significantly outpaced portfolio runoff of $2.1 billion, resulting in a higher overall index denominator. Both the new delinquency and resolution volumes last month were minimal at $169 million and $90 million, respectively.

While the overall delinquency rate declined over the past year, Fitch expects it will reverse course over the next few months, with hotel and retail expected to have the highest delinquency rates due to the coronavirus pandemic.

Meanwhile, Trepp, New York, said its CMBS Delinquency rate inched up in March, a “rare break” from the downward trend that has extended for nearly three years, said Managing Director Manus Clancy.

“For those looking for a large COVID-19 induced uptick in March, that was always unlikely,” Clancy said. “With most loans having payments due on the first of the month, most borrowers for performing loans would likely have made their March payment – this was before the industry gained more clarity on the magnitude of the outbreak’s disruption to businesses.”

Trepp said the March reading was 2.07%, an uptick of three basis points from February, representing $10.39 billion of CMBS loans classified as being more than 30-days late with their payments last month. That’s a 3.5 percent increase in volume from February.

The largest rate drop among major property sectors in March belonged to the multifamily sector, with its delinquency reading dropping 16 basis points to 1.63%. The overall CMBS 2.0+ delinquency rate ticked up two basis points in March to 0.91%, up 26 basis points year over year. The retail delinquency rate climbed 27 basis points to 3.89%. Retail remains the worst performing major property type.

“At least for now, heavy new issuance from late last year added performing supply to the denominator and some of the defaulted legacy loans continued to get resolved away in February,” Clancy said. “The downward pressure of both variables on the delinquency rate should be reduced in the coming months with new issuance having stalled, distressed property sales being postponed, and COVID-19 related delinquencies starting to represent a new inflection point. Time will tell if the February level of 2.04% represents a post-crisis low for a long time to come.”