CMBS Delinquency Rate Finishes 2017 Lower

The commercial mortgage-backed securities delinquency rate continues to decline–largely due to strong new issuance, continued resolution activity and the slowing pace of new delinquencies–reported Fitch Ratings, New York.

The CMBS delinquency rate has fallen for six consecutive months, Fitch said.

Fitch’s overall CMBS delinquency rate finished 2017 at 3.22 percent 12 basis points lower than year-end 2016. Fitch said it expects the overall delinquency rate to end 2018 between 2.25 percent and 2.75 percent.

“Another sharp drop in the delinquency rate helped cap off a stellar second half of 2017 for the CMBS market,” said Manus Clancy, Senior Managing Director with Trepp, New York. “December’s rate decrease helped the reading finish lower year-over-year, a victory by any stretch of the imagination. The confluence of new issuance spiking in 2017, low market volatility, and a high volume of maturity resolutions ties a nice bow onto the year for CMBS players.”

Clancy said more than $800 million in CMBS loans became newly delinquent in December, down from $1.1 billion in November. Those new delinquencies put 20 basis points of upward pressure on the delinquency rate reading. But more than $800 million in notes were cured last month and more than $1.15 billion in previously delinquent CMBS loans were resolved with a loss or at par. These moves pushed the December delinquency rate down by 48 basis points.

The retail sector experienced the largest month-over-month rate last month; its delinquency rate fell 66 basis points to 6.13 percent. The industrial delinquency rate slid 43 basis points to 5.67 percent and the multifamily reading decreased 35 basis points to 2.36 percent. Multifamily remained the best-performing property type.

Fitch predicted the overall CMBS delinquency rate will fall in 2018 due to “negligible” maturing loan volume, continued stable performance of 2.0 loans and similar new issuance volume to the prior year. It also expects increased REO liquidations by special servicers.

Meanwhile, prices of commercial real estate loans underlying CMBS decreased slightly in November–the latest data available, said Will Mercer, Managing Director with DebtX, Boston. The estimated price of whole loans securing the CMBS universe decreased to 96.9 percent during the month from 97.2 percent on October 31. Prices equaled 97.5 percent one year prior.

“The slight dip in loan prices in the CMBS universe is consistent with the trend we’ve seen over the past few months,” Mercer said. “The rising price of U.S. Treasuries was the primary contributor to the decline in commercial real estate loan prices.”