Fitch: CMBS Delinquencies Dropped 21% in 2016

The commercial mortgage-backed securities delinquency rate closed out 2016 down 21 percent by balance from year-end 2015, but late-pays could reverse course in 2017, reported Fitch Ratings, New York.

Fitch reported the overall delinquency rate finished the year at 3.34 percent, up five basis points from the previous month, but down 68 basis points from one year ago. Fitch said CMBS delinquencies finished 2016 at $12.1 billion, down from $15.3 billion at year-end 2015. Resolutions again outpaced new delinquencies for the year, ending 2016 at $11 billion and $7.8 billion, respectively, compared to $8.5 billion and $5.6 billion in 2015. 

Trepp, New York, noted that 2016 began “on an extremely positive note” as the delinquency rate fell 102 basis points in January and February, largely due to the resolution of the $3 billion Stuyvesant Town/Peter Cooper Village loan on Manhattan’s east side. Blackstone Group acquired the troubled property in December 2015 for $5.3 billion. 

But after that strong start the CMBS delinquency rate moved higher in nine of the next 10 months, Trepp reported.

As 2017 progresses, CMBS 1.0 delinquencies will face continued pressure from nearly $47 billion of loans within Fitch-rated transactions scheduled to mature in 2017, Fitch said. The ratings agency projected “significant” delinquencies from these maturing loans because many are highly leveraged and will likely have difficulty refinancing. Assuming current market refinance rates similar new issuance volume for 2017, the overall delinquency rate will likely increase to between 5.25 percent and 5.75 percent by year-end 2017, Fitch said.

Brian Olasov, Executive Director of Financial Services Consulting with Carlton Fields, New York, said pre-crisis and post-crisis default rates should not be considered together. “The performance of pre-crisis deals differs so materially from post-crisis deals that they’re really separate markets,” he said. “We also know that refinancing rates on the 2007-vintage deals are starting to drop, resulting in maturity default increases.” 

Olasov said community and regional banks will weigh heavily on refinancing success. If they continue to lend aggressively they will support successful takeouts. But if under regulatory pressure they tighten the reins, maturity defaults could spike, he said.

“With some pockets of exceptions, fundamentals at the property level are likely to remain positive in 2017,” Olasov said.