CMBS Delinquency Rate Falls For Ninth Straight Month
The commercial mortgage-backed securities delinquency rate fell once again in March and most CMBS rating actions were affirmations, analysts reported.
Following an “impressive decline” in February, the Trepp CMBS delinquency rate once again continued its downward trajectory in March, said Trepp Senior Managing Director Manus Clancy. “The rate has now declined for nine consecutive months after seeing two huge increases after the height of the coronavirus pandemic in May and June 2020.”
Clancy noted CMBS delinquency rates started increasing in April 2020 when pandemic lockdown mandates affected property owners’ ability to collect rent payments. The Trepp CMBS Delinquency Rate equaled 6.58 percent in March, a 22-basis point drop from February.
Fitch Ratings, New York, said affirmations accounted for 87 percent of its CMBS rating actions during the first quarter. Downgrades made up 9 percent and rating watch negative activity represented 4 percent. There were very few upgrades, less than 1 percent.
“Although the pandemic resulted in an increase in delinquencies and cash flow declines, some of these performance measures are expected to be temporary,” Fitch said. The firm’s current ratings consider a base case loss with additional coronavirus-related stresses and any potential outsized loan-level losses driving its outlooks.
Of the 201 downgrades Fitch made during the first quarter, 31 classes from 18 transactions were downgraded by more than three notches, Fitch said in its first-quarter CMBS Rating Action Update. “These downgrades were driven mainly by the higher concentrations of pre-pandemic underperformers, mostly class B/C regional malls, as well as weaker retail, hotel and student housing properties where performance is not expected to recover from a prolonged stress.”
Fitch noted its loss expectations have increased “significantly” on what were already struggling regional mall loans before the pandemic, “particularly those with mall operators that are either not willing or able to commit additional equity to stabilize properties and have opted to hand back keys,” the report said.
Moody’s Analytics, New York, reported liquidations actually fell last year despite the coronavirus pandemic. The firm reported 173 loans were liquidated last year with a total loss of $1.6 billion, compared with 373 loans with a total loss of $4.0 billion in 2019. The annual loss amount represented a record low since 2010, the report said.
