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CMBS Delinquencies Could Fall to 2009 Level by Yearend

JAN 10, 2014 5:00pm ET
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A healthy pace of resolutions and strong new issuance are bound to help improve the CMBS delinquency rate throughout 2014, analysts note in a recent report.

This outlook is based on expectations to see improved year-over-year performance since delinquencies improved by roughly two percentage points in 2013, compared to 8% one year to date and the expectation see the rate decline to just under 6%, they wrote.

In 2014 analysts expect the pace to continue bringing the yearend delinquency rate to below 4%, “which would be the lowest level since October 2009.”

Assumptions include “that new issuance keeps pace with portfolio runoff, holding the denominator roughly fixed, as it did in 2013.”

Supporting factors also include expectations to see resolutions for loans less than $100 million will also remain at their 2013 pace.

In addition, the $3 billion Peter Cooper Village/Stuyvesant Town loan is not expected to be resolved this year because the servicer is expected to market the asset in mid-2014, which “due to the size of the asset, lining up a buyer and completion of a sale” requirements, it may not occur until 2015, according to Fitch.

But if the loan is resolved by yearend, “the delinquency rate could fall to below 3.5%.”

Key factors likely to contribute to lower delinquencies this year include the bulk sale of certain assets that should lead to a “sharp decline” in the late-pay rate. For example, the inventory of real estate owned assets has grown to over 50% of all delinquent loans tracked by Fitch.

In addition, at under $20 billion, the volume of Fitch-rated loans mostly originated in 2004 and 2005 with coupons over 5.5% that mature in 2014 will be relatively small.

New defaults may consist of “a modest amount” form approximately $3.3 billion of seven-year loans originated in 2007 that mature in 2014.

By property type, analysts expect hotels are likely to see the largest drop in delinquencies in 2014.

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