Trepp: CMBS Delinquency Rate Increases Continue

The commercial mortgage-backed securities delinquency rate continued to increase in October, reported Trepp, New York.

“The [delinquency] rate began to rise in March as loans from the 2006 and 2007 vintages started to reach their maturity dates, which has caused the reading to move higher in seven of the last eight months,” Trepp’s CMBS Delinquency Report said.

The overall CMBS delinquency rate now stands at 4.98 percent, up 20 basis points from September, Trepp said. The industrial delinquency rate grew 26 basis points to 5.5 percent, the lodging delinquency rate increased 18 basis points to 3.43 percent, the office delinquency rate rose 11 basis points to 6.44 percent and the retail delinquency rate jumped 30 basis points to reach 6.19.

Apartment loans remained the best-performing property type despite an 8-point delinquency rate increase to 2.41 percent, Trepp noted.

Nearly $500 million in CMBS loans cured last month, which helped push the delinquency rate 10 basis points lower. But that was more than offset by $1.9 billion in loans that became newly delinquent, Trepp reported.

Prices for loans underlying CMBS increased also modestly in September, third-party loan valuation service DebtX reported.DebtX, Boston, estimated that the price of whole loans securing the CMBS universe increased to 99.8 percent from 99.6 percent in August. Prices equaled 98.4 percent one year ago.

“CMBS prices rose only slightly in September, with the median loan yield reflecting no change,” said DebtX Managing Director Will Mercer. “The increase was due to a narrowing in the base market spreads during the month.”

DebtX examined $960 billion in commercial real estate loans that collateralize U.S. CMBS trusts. It said the median adjusted loan-to-value remained at 57 percent in September and the median debt-service coverage ratio increased to 1.5x. The median estimated loan yield also remained at 4 percent.

Risk retention remains one of the most talked-about issues of the year as 2016 winds down, said Fitch Ratings Senior Director Lauren Cerda. Starting in December, CMBS issuers must retain 5 percent of every new deal issued or find a B-piece buyer willing to take on that risk. 

Cerda said that as the Dec. 24 deadline approaches, risk retention “seems to be less catastrophic than originally anticipated. Some issuers are currently testing various structures and seem to have an idea of what the additional cost may end up being.” She said Fitch expects an additional 15 to 30 basis points of spread for deals that price during first-quarter 2017 due to risk retention rules. 

Fitch views risk retention as credit-neutral overall, Cerda said.