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TREPP: U.S. CMBS DELINQUENCY RATE FALLS TO LOWEST LEVEL IN NEARLY A YEAR

Manus Clancy

NEW YORK — The delinquency rate for U.S. commercial real loans in commercial mortgage-backed securities (CMBS) fell 14 basis points in January to 9.57 percent, the lowest level in 11 months, according to New York-based analytics firm Trepp LLC, which closely tracks the industry. The improvement also marks the resumption of the downward trend in the rate that began in August 2012. The figure is based on loans 30 days or more past due.

Among the five major property types, multifamily loans led the pack with an improvement of 55 basis points in the delinquency rate between December and January, dropping from 13.98 percent to 13.43 percent. The rate on office loans also improved, while the rates on all other major property types were modestly higher. The retail delinquency rate increased by 17 basis points to 7.79 percent, but retail remains the best performing property type (see table).

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Loan resolutions experienced a slight bump in January, with more than $1.2 billion in loans resolved with losses. The removal of these loans from the delinquent category helped drive the delinquency rate down 22 basis points. Loans that cured put an additional 40 basis points of downward pressure on the rate.

There was approximately $2.8 billion of newly delinquent loans in January, putting 50 basis points of upward pressure on the rate. This total was less than the $3.2 billion of newly delinquent loans reported in December 2012.

“If the CMBS market was cycling, people would think that someone had been dumping performance enhancing drugs in the water cooler,” said Manus Clancy, senior managing director of Trepp. “New issue volume hit a five-year high in January, spreads on legacy AJ and mezzanine paper collapsed, pricing levels on new deals came in remarkably tight across the credit stack, and the delinquency rate fell once again — all very positive signs for the market.” (Junior AAA-rated CMBS are bonds known as the AJ tranche.)

One potential offset to some of the downward pressure on the overall delinquency rate, according to Trepp, is increased refinancing activity in 2013. With borrowing rates and CMBS spreads at or near record lows, refinancing activity will not only impact distressed loans, but will also lead to the removal of some performing loans from the equation.

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Source: Trepp LLC

The amount of delinquent CMBS loans currently stands at $52.8 billion, according to Trepp. This number excludes loans that are past their balloon date but are current on their interest payments. Some $67.3 billion in loans are in special servicing, representing about 3,300 loans.

The percentage of loans seriously delinquent (60 or more days delinquent, in foreclosure, REO, or non-performing loans with a balloon payment) is now 9.11 percent, down seven basis points from December 2012.

— Matt Valley

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