CMBS Special Servicing Rates Diverge
The commercial mortgage-backed securities special servicing rate settled down in June after two “roller coaster” months, but drilling deeper reveals an interesting trend, reported Trepp, New York.
The special servicing rate saw relatively large movements in April and May before dipping just one basis point in June, Trepp Analyst Dylan Wall said. But while the special servicing rate for CMBS 2.0-plus loans increased by four basis points month-over-month, the rate for legacy CMBS 1.0 notes declined by 45 basis points.
“Breaking the rate down by property type, the office sector stood out as the only property type to experience a change in its special servicing rate greater than two basis points,” Wall said in Trepp’s June Special Servicing Report, noting the sector’s special servicing rate declined by 10 basis points.
The overall CMBS special servicing rate fell one basis point in June to 3.36 percent, Trepp said. Six months ago that rate equaled 3.80 percent.
A total of 15 loans with a collective balance of $217.4 million transferred to special servicing in June, a small $100,000 increase from May’s balance. “While the difference in volume between the two months was small, the composition of newly transferred notes differed drastically,” the Trepp report said, noting retail assets accounted for nearly 40 percent of loans that transferred to special servicing in May while mixed-use properties made up 37 percent of the newly transferred loans in June.
Fitch Ratings U.S. CMBS Managing Director Huxley Somerville said retail remains the biggest sore spot for U.S. CMBS. “As the broader retail sector continues its profound change, the ripple effect for U.S. CMBS is being felt even in malls that have survived thus far,” he said.
But while other property types have not received as much scrutiny as retail has lately, recent revenue increases for some hotels and multifamily properties might not be sustainable over the loan’s 10-year life. “As such, Fitch is taking a more guarded view of recent hotel and multifamily revenues,” Somerville said. “Student housing, while much smaller in size, is a notable weak spot with delinquencies coming in six times higher than other multifamily loans.”
Somerville said CMBS underwriting has held up “remarkably well” since 2016. But the continued increase in interest-only loans remains a concern, as is the number of single-tenant properties going into conduit deals, he noted.
