For the 18th time in 20 months, the delinquency rate for U.S. CMBS loans 30 days or more past due has decreased. The Trepp CMBS Delinquency Rate fell nine basis points from December to January to 5.66 percent. What’s more, the delinquency rate is now 159 basis points lower than it was in January 2014 when it stood at 7.25 percent
Across property types, lodging continues to be the best performing asset class, with a delinquency rate of 4.40 percent, down 37 basis points in January, according to New York-based Trepp, which closely tracks the CMBS industry.
The industrial delinquency rate saw the second-largest decrease last month, with a 35-basis-point drop to 7.2 percent. The office delinquency rate was the only major property type to increase in January, with a 10-basis-point increase to 6.18 percent.
CMBS loans that were previously delinquent but paid off either at par or with a loss totaled almost $1.2 billion in January, according to Trepp. Removing these previously distressed assets from the equation helped lower the rate down by 22 basis points. More than $500 million in loans were cured in January, which helped push delinquencies lower by 10 basis points.
At the same time, $1.5 billion in loans became newly delinquent in January, which put 27 basis points of upward pressure on the rate. In addition, the Trepp CMBS universe grew by about $4 billion as a result of adding so-called new CMBS 3.0 deals. (Deals are added after they’ve been seasoned six months.
There are currently $29.9 billion in delinquent CMBS loans, about $300 million lower than in December. This number excludes loans that are past their balloon date but are current on their interest payments.
The percentage of loans seriously delinquent (60+ days delinquent, in foreclosure, REO, or non-performing balloons) is now 5.47 percent, 16 basis points lower for the month.
If defeased loans were taken out of the equation, the overall 30-day delinquency rate in January would be 5.96 percent — down nine basis points from December.
Seizing the Momentum
Meanwhile, CMBS lenders are brimming with confidence these days— and for good reason. There is a plethora of loans due to mature this year that will need refinancing, the 10-year Treasury yield continues to hover at or slightly below 2 percent, and spread volatility has been modest, according to Trepp.
These factors mean investors and issuers should remain busy for the foreseeable future. (CMBS industry experts emphasize that more than $300 billion in CMBS loans are due to mature from 2015-2017.)
“The issuance engine is kicking into gear after a few weeks interrupted by the CREFC (CRE Finance Council) conference in Miami and snowstorms in the Northeast,” says Trepp Senior Managing Director Manus Clancy.
Total U.S. CMBS issuance year-to-date as of early February 2015 was $7 billion, according to CREFC. For all of 2014, domestic CMBS issuance totaled $90 billion, up from $80 billion in 2013, a 12.5 percent annual increase. That upward trend is expected to continue this year.
“Trading volume is up while delinquencies and rates are down,” says Trepp Research Associate Joe McBride. “These are all good signs for continued strength in 2015.”
— Matt Valley