Matt Valley
After the CMBS delinquency rate dropped below 10 percent in September, New York-based Trepp LLC projected that the delinquency rate would continue to see considerable downward pressure in the months to come.
That was certainly the case in October, as the rate saw its biggest drop in 14 months. The delinquency rate for U.S. commercial real estate loans in CMBS fell 30 basis points to 9.69 percent in October.
Loan resolutions remained high in October. More than $1.5 billion in loans were resolved in October with losses. The removal of these loans from the delinquent loan category accounted for 28 basis points of downward pressure on the delinquency rate.
Newly delinquent loans — around $2.6 billion in total — put upward pressure of about 46 basis points on the rate. This was significantly less than September’s $3.3 billion of newly delinquent loans that contributed 59 basis points of upward pressure.
Loans that cured in October put downward pressure of 45 basis points on the rate, essentially offsetting the amount of loans that became delinquent.
Added together, the impact of the loan resolutions, the effect of loans curing, and the effect of newly delinquent loans created a net improvement of 27 basis points in the delinquency rate.
The remaining three basis points were a result of the repayment of performing loans, loans becoming defeased, the amortization of existing loans, and the addition of new deals to the pool.
Among the major property types, only the multifamily segment weakened in October. Office, retail, lodging, and industrial loans all saw improvements month over month.
Best, worst performing property sectors
• The retail delinquency rate decreased by six basis points to 8.03 percent and remains the best performing major property type.
• The multifamily delinquency rate increased 17 basis points and remains the worst major property type with a rate of 14.26 percent.
• The industrial delinquency rate shed 68 basis points in October and is now 11.53 percent.
• The lodging delinquency rate dropped 92 basis points to 11.24 percent.?
• The office delinquency rate fell 28 basis points to 10.20 percent.
The road ahead
The improvement in the delinquency rate may not be over yet. Trepp foresees no reason for the volume of loans being resolved each month to drop. Borrowing costs remain extremely low and the appetite for distressed real estate remains high. This should allow special servicers to continue to operate at a high speed for the foreseeable future.
In addition, with new issue CMBS all-in rates extraordinarily low and new issuance levels growing, some marginal properties that had dim prospects for refinancing 12 months ago might get taken out now.
The increase in issuance will have a dilutive impact on the numbers as new, “clean” loans get added to the universe, according to Trepp.
When coupled with the anticipated high-resolution volume, these loans will continue to put downward pressure on the overall rate.
Other October highlights
• The percentage of loans seriously delinquent (60-plus days delinquent, in foreclosure, REO, or non-performing balloons) is now 9.16 percent, down 27 basis points for the month.
• If defeased loans were taken out of the equation, the overall 30 day delinquency rate would be 10.10 percent, down 27 basis points.
• The volume of delinquent loans currently is $54.6 billion. This number excludes loans that are past their balloon date, but are current in their interest payments.
• There are $71.3 billion in loans with the special servicer. This represents just over 3,700 loans.