CMBS Delinquency, Special Servicing Rates Improve

Trepp LLC, New York, reported the commercial mortgage-backed securities delinquency rate declined again in June–but not by much.

“This drop came by the narrowest of margins,” said Trepp Senior Managing Director Manus Clancy. The CMBS delinquency rate fell one basis point in June to 6.15 percent, continuing an 11-month trend.

“For those looking for a recap, the surge in CMBS delinquencies that most industry watchers were anticipating at the start of the coronavirus pandemic came through in May 2020 and then again in June 2020,” Clancy said. “After the surge, the rate hit terminal delinquency velocity, meaning most of the borrowers that felt the need for debt service relief had already requested it.”

Clancy noted if a borrower did not need relief in April, May or June 2020, generally speaking the borrower did not end up needing relief at all. “Since then, the CMBS delinquency rate has been on a downward trend, with the largest drop in the rate seen in February 2021,” he said.

Trepp Associate Manager Catherine Liu said the CMBS special servicing rate maintained its strong downward movement in June, “helped by the economy continuing to make progress towards a full reopening.”

The overall CMBS special servicing reading fell 41 basis points to 8.24 percent in June, the ninth consecutive monthly decrease. “With firms re-evaluating the need for office space and finalizing plans to bring employees back to work, there appears to be a notable pickup in special servicing transfers for office and mixed-use loans, especially those in major gateway cities,” Liu said.

By property type, the lodging and retail sectors saw the most improvement in special servicing rates. The sectors posted 143 basis point and 116 basis point reductions, respectively. Just over 18 percent of lodging loans and 14 percent of retail loans are currently in special servicing, Trepp reported.

Kroll Bond Rating Agency, New York, said loans secured by single-tenant properties trended upward as a percentage of a transaction’s securitization balance through first-half 2021. Larry Kay, KBRA Senior Director of CMBS Surveillance, said the percentage pierced the 20 percent threshold in 2020 for the first time in the nine years the firm has tracked such exposure. The figure rose to 21.9 percent year-to-date as of June 30.