CMBS Delinquency Rate, Liquidations Drop

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The commercial mortgage-backed securities delinquency rate continues to decline, and CMBS liquidations also dropped last year, analysts said.

Trepp LLC, New York, said the CMBS delinquency rate fell 31 basis points during February; it has contracted in 19 of the past 20 months with only a brief uptick in late 2021.

“The decline was helped by the ongoing healing of the retail and hotel segments,” Trepp said in its March CMBS Delinquency Report. The CMBS delinquency rate equaled 3.87 percent in February, the first time it has fallen below 4 percent since April 2020.

In its quarterly CMBS Loss Severities report, Moodys, New York, reported CMBS liquidations also dropped last year, though annual loss severity remained “elevated,” the report noted. During 2020, 173 loans were liquidated with a $1.6 billion total loss, down from 373 loans liquidated with a $4.0 billion total loss in 2019.

The office sector was the largest loss contributor last year, Moodys said. Retail was the second-largest loss contributor and had the highest annual loss severity among the five major property types at 66.1 percent.

Moodys reported CMBS 2.0 loans contributed to a “substantially higher” share of the total 2020 losses. “While CMBS 1.0 loans continued to dominate annual liquidations, the share of losses from CMBS 2.0 loans increased substantially,” the report said. During 2020, 54 CMBS 2.0 loans liquidated with a total loss of $357.8 million and a 39.2 percent weighted-average loss severity.

Kroll Bond Rating Agency, New York, also studied CMBS 2.0 commercial real estate securitization credit performance among conduit, single borrower/large loan and CRE collateralized loan obligation transactions during the pandemic.

“COVID’s onset in March 2020 marked the start of the first major credit dislocation since the Great Recession,” KBRA said in CMBS 2.0 Weathers Its First Storm. “Despite major challenges stemming from this disruption, CRE transaction performance has held up reasonably well, with lessons learned from the Great Recession helping to mitigate COVID’s credit impact.”

KBRA declined to speculate on where the next crisis will come from, “[but] it is fair to say that clouds are gathering on the horizon,” KBRA said. “Should recessionary forces arise, this will inevitably contribute to rating volatility; however, CMBS 2.0 deals are better positioned than CMBS 1.0 deals to weather future storms.”