CMBS Delinquency Rate Drops, Issuance Increases

The commercial mortgage-backed securities delinquency rate dropped significantly in July after climbing in June and issuance volume remained healthy, reported Trepp and Kroll Bond Rating Agency, New York.

The delinquency rate for commercial real estate loans in CMBS fell 26 basis points during July to 5.49 percent, just two basis points higher than where it stood in late May. The rate increased 28 basis points in June.

“After hitting a post-crisis low in February 2016, the reading has consistently climbed since early 2016 as loans from 2006 and 2007 have reached their maturity dates and have not been paid off via refinancing,” Trepp said, noting that the rate has moved up in 13 of the last 17 months.

Delinquency readings for four of the five major property types fell in July. Only the lodging sector saw a higher delinquency rate, Trepp reported.

The CMBS delinquency rate is now 73 basis points higher than the year-ago level and has increased 26 basis points year-to-date. The reading hit a multi-year low–4.15 percent–in February 2016 and reached a 10.34 percent cyclical in July 2012.

Kroll Bond rating Agency, New York, reported that private-label CMBS pricing volume remained healthy at $7.6 billion in July. The recent deals brought the year-to-date volume to $41.9 billion, up more than 28 percent year-over-year.

Much of the increased volume year-to-date can be attributed to the $16.3 billion in single-borrower deals that priced this year, more than double last year’s total through July, KBRA’s CMBS Trend Watch report said. Single-borrower deals accounted for eight of the 12 deals that priced in July.

“Based on our forward-looking pipeline, CMBS volume is expected to remain strong through August with up to eight single-borrower deals as well as a few conduit and commercial real estate collateralized loan obligation deals that are expected to launch during the month,” KBRA said. The report said the conduit segment is picking up, with eleven transactions that could launch through mid-October.

New issue conduit spreads saw moderate tightening during July, KBRA reported. For the benchmark 10-year class, spreads came in from the June range of S+91 to S+94 (excluding the S+110 outlier) to S+88 to S+92 in July.