The delinquency rate for U.S. commercial real estate loans contained in CMBS fell 15 basis points from January to February to 9.42 percent, according to New York-based Trepp LLC. Since hitting a peak of 10.34 percent at the end of July 2012, the delinquency rate has fallen 92 basis points.
Among the five major property types, hotel loans led the pack with loan delinquencies dropping a whopping 169 basis points to 10.08 percent. The rate on apartment loans also improved 16 basis points to 13.27 percent, while the rates on industrial and office loans were modestly higher (see table).
The big drop in the hotel delinquency rate moved the property type from the second worst performer to the second best, leapfrogging both the office and industrial loan readings during the course of the month.
While the magnitude of change in the gains among hotel loans is striking, a further examination leads one to believe that this is not nearly as impressive as it seems at first glance, Trepp points out.
Many of the largest loans that cured were ones that went from “non-performing matured balloons” to “performing matured balloons.” As a result, the gains in February in the hotel sector turn out to be fleeting, as they may be driven more by reclassification of reporting, according to Trepp. (While both categories include loans that are past their maturity dates, performing matured balloons have an interest payment being made, and thus are not counted as delinquent.)
The big picture
Approximately $67.2 billion of CMBS loans are currently in special servicing, representing about 3,300 loans. Newly delinquent loans totaled $2.7 billion in February, which put about 48 basis points of upward pressure on the delinquency rate.
Meanwhile, loan resolutions dropped to just under $1 billion in February. The removal of these loans from the delinquent category accounted for 18 basis points of downward pressure on the delinquency rate. Finally, loans that cured put an additional 40 basis points of downward pressure on the rate.
Forward-looking data points to lower delinquency rates over the near term, according to Trepp, as special servicers continue to resolve non-performing loans and as new CMBS deals are added to the index.
One ongoing offset to some of the downward pressure on the overall delinquency rate is the robust refinancing activity. With borrowing rates and CMBS spreads near record lows, refinancing activity will not only impact distressed loans, predicts Trepp, but it will also lead to the removal of some performing loans from the equation.
— Matt Valley