US CMBS Delinquency Rate Plummets in June

Rate at Lowest Level since October 2010

In June, the Trepp CMBS delinquency rate posted its lowest reading in almost three years. The 42-basis-point drop in the delinquency rate was the biggest one-month improvement since Trepp began publishing the monthly rate in the fall of 2009. Four of the five major property types saw their delinquency rates fall in June. The delinquency rate for US commercial real estate loans in CMBS was 8.65% in June. This was the first time the rate has dropped below 9% since November 2010 and the lowest percentage since the October 2010 rate of 8.57%.

The resolution of distressed CMBS loans has been a major factor in driving the delinquency rate lower this year, and that was the case in June as well.

Loan resolutions totaled $1.25 billion in June, up sharply from May’s total of about $858 million. The removal of these distressed loans from the delinquent assets bucket last month created 23 basis points of downward pressure on the delinquency number.

At the same time, there were about $1.25 billion in newly delinquent loans in June, which measured approximately half the total posted in May. This put upward pressure of 23 basis points on the delinquency rate, negating June’s high level of loan resolutions.

Loans that cured totaled $2.3 billion, putting downward pressure of 42 basis points on the delinquent loan reading. One large loan worth mentioning that cured is the $716.5 DRA/Colonial Office Portfolio. Last month we noted that we were perplexed that the loan had shown up as late, as it was recently modified. This month the loan was listed as current again. That status change alone created 13 basis points of improvement in the delinquency rate.

Despite the huge improvement in the delinquency rate, investors ended the month of June asking themselves if the latest salad days for the CMBS market are about to end. The huge wave of new CMBS issuance, refinancing of older loans, new property sales, and higher prices and velocity of selling distressed properties was driven by five-year
lows in CMBS spreads and microscopic Treasury yields. Since the first of May, however, the yield on the 10-year Treasury is almost 100 basis points higher and CMBS AAA spreads are higher by 30 to 40 basis points. This means significantly higher borrowing costs for property owners, which could be a hindrance for many factors driving delinquencies lower.

The Numbers:

  • The overall US CMBS delinquency rate decreased 42 basis points to 8.65%.
  • The percentage of loans 30+ days delinquent or in foreclosure:
    June ‘13: 8.65%; May ‘13: 9.07%; April ’13: 9.03%
  • The percentage of loans seriously delinquent (60+ days delinquent, in foreclosure, REO, or non-performing balloons) is now 8.37%, down 30 basis points for the month.
  • If defeased loans were taken out of the equation, the overall 30-day delinquency rate would be 8.98%—down 42 basis points from May.
  • There are currently $47.1 billion in delinquent loans. (This number excludes loans that are past their balloon date but are current on their interest payments.)
  • There are $59.3 billion in loans with the special servicer. This represents about 3,000 loans.

Historical Perspective:

  • One year ago, the US CMBS delinquency rate was 10.16%.
  • Six months ago, the US CMBS delinquency rate was 9.71%.
  • One year ago, the rate of loans seriously delinquent was 9.73%.
  • Six months ago, the rate of loans seriously delinquent was 9.18%.

Multifamily Inches Up, All Other Major Property Types Improve

  • The industrial delinquency rate fell 73 basis points and is now 11.72%, making it the worst major property type.
  • The lodging delinquency rate fell 22 basis points to 9.43%. Once among the worst major property types, hotels are second best.
  • The multifamily delinquency rate ticked up eight basis points and is now 11.67%.
  • The office delinquency rate dipped 27 basis points to 9.97%.
  • The retail delinquency rate dropped 38 basis points and is now 7.08%. Retail remains the best performing major property type.


West Coast Commercial Real Estate News