CMBS Special Servicing Rate Slips, Issuance Could Bounce Back in 2021

Trepp, New York, reported the commercial mortgage-backed securities special servicing rate inched down in October after peaking in September.

The company’s CMBS Special Servicing rate fell 20 basis points in October to 10.28 percent. “This change can be attributed in part to loans that have been granted forbearances and are now being transferred out of special servicing and returned to the master servicer,” Trepp said in its October CMBS Special Servicing Report.

The special servicing rate reduction is mainly due to a decrease in the lodging and retail sectors, Trepp reported. The lodging sector’s special servicing rate fell 59 basis points during October to 25.45 percent and the retail special’s servicing rate dropped 32 basis points to 18 percent.

October represented the first month this year in which the CMBS special servicing rate and the CMBS delinquency rate both declined, Trepp said.

Citi, New York, said it expects the CMBS delinquency rate’s downward trend to continue. The firm forecasts a 7.5 percent delinquency rate in 2021.

Citi said CMBS issuance will likely rebound next year from its current “depressed” level. Its 2021 CMBS supply forecast is $75 billion, 36 percent above the $55 billion expected this year. “Mortgage debt originations should rise on a pickup in the transaction market and an increasing refinance volume,” Citi said, noting the Urban Land Institute projects a 33 percent increase in transaction activity next year.

Citi said it expects $150 billion in agency CMBS issuance next year, 5 percent below this year’s $158 billion projected total. This issuance projection includes $65 billion of Fannie Mae DUS securitizations, $65 billion of Freddie Mac multifamily securitizations and $20 billion of Ginnie Mae Project Loan supply.

“CRE Collateralized Loan Obligations net supply growth will remain limited as the mostly floating-rate sector sees refinancing volume at near the same level as new supply,” Citi said. It forecast the outstanding balance should remain around $35 billion in the coming year.

Citi said it expects private-label CMBS net supply will be $29 billion in 2021, increasing the outstanding balance to $588 billion. “Net supply turned positive in 2018 after several years of running negative or flat,” the report said.

Fannie Mae and Freddie Mac’s combined multifamily outstanding balance could approach $820 billion a year from now, up from just under $800 billion now, Citi noted.