CMBS Delinquency Rate Drops Significantly
The commercial mortgage-backed securities delinquency rate dropped significantly in September after four months of negligible movement, reported Trepp, New York.
The delinquency rate for commercial real estate loans in CMBS fell 17 basis points to 5.28 percent, 75 basis points lower than the year-ago level and down 47 basis points since the start of the year.
In September, $1.4 billion in loans became newly delinquent, putting 26 basis points of upward pressure on the delinquency rate, Trepp reported. But nearly $700 million in loans cured last month, which pushed delinquencies lower by 13 basis points. Previously delinquent CMBS loans that but paid off with a loss or at par totaled almost $1.3 billion Removing these previously distressed assets from the delinquency calculation’s numerator moved the rate down by 25 basis points.
Chris van Heerden, head of CMBS and real estate research with Wells Fargo Securities, Charlotte, said with defaults down overall and a higher percentage of loans being resolved with liquidations, modification activity this year may fall to its lowest level since 2009. “If the current pace holds, modification activity may finish the year down almost 50 percent compared to 2014, based on loan count,” he said.
van Heerden said liquidations currently outpace modifications 16 to 1, up from 10 to 1 in 2014 and 6 to 1 in 2013.The 2005 and 2007 vintages account for most of 2015 modification activity in 2015, van Heerden said–35 percent and 32.5 percent, respectively. Of the property types, retail-backed loans represent more than 42 percent of modifications this year, the largest share.
Maturity defaults and term defaults receiving modifications split fairly evenly at 45 percent and 55 percent, respectively, van Heerden said. “There’s also been a nearly even split between loans with balances less than $10 million and greater than $10 million,” he noted.
The lower overall volume of defaults coupled with the higher use of liquidations led to fewer modifications in 2015. But van Heerden expects modification activity to pick up in 2016 as the volume of maturities swells. “Loan size will also be a large factor with historical data showing that as size increases so does the likelihood of a modification,” he said.
