JAN 3, 2013 11:42am ET

U.S. CMBS Delinquency Rate Unchanged in December

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After months of steady ups and downs, the delinquency rate for commercial mortgage-backed security loans has finally hit a wall.

The Trepp CMBS delinquency rate remained unchanged from the previous month in December at 9.71%. However, this is still greater than a year ago when the rate was 9.58%.

From early 2012 through the end of the summer, the CMBS delinquency rate was a roller coaster for several months. For example, commercial real estate loans in delinquency reached an all-time high in July of 10.36%, which marked the fifth straight month of increases. However, by September, the rate fell below 10% for the first time since April.

By December, the number of newly delinquent loans totaled around $3.2 billion. While there were fewer new delinquencies in December from the prior month, the number of CMBS loans resolved with losses also decreased with just over $1.1 billion.

Among the major property types, office was the only segment in December to see a higher month-over-month delinquency percentage with a jump of 29 basis points to 10.66%.

On the positive side, delinquency rates for industrial loans were down to 11.24% from 11.48%, lodging fell 51 basis points to 11.73%, multifamily saw a 23 basis point dip to 13.98% and retail experienced a 13 basis point decline to 7.62%.

“Despite the fact that the delinquency rate has leveled off once again, it’s been a spectacular run for the CMBS industry over the last six months,” said Manus Clancy, senior managing director of Trepp. “Not only did spreads plummet since June, it’s become easier for borrowers to refinance, research groups are lifting their estimates for 2013 issuance, and delinquency rates are well below their all-time highs.”

During the first six months of last year, large movements in the delinquency rate occurred primarily because of the high number of five-year loans securitized in 2007, the New York-based analytic firm said. As these loans reached their maturity dates and were unable to refinance, the rate was therefore pushed to record highs.

Meanwhile, with these troubled loans now behind the market and the next wave not coming due until 2014, Trepp said it projects rate movements to be “modest” in the near future. However, there are expectations for refinancings to increase as a result of borrowing rates and CMBS spreads being at record lows, which will lead to the removal of some performing loans.

“Forward-looking data suggests the rate will see further improvement in the coming months,” the firm added. “Special servicers are continuing to resolve nonperforming loans and new CMBS deals are being added to the index, diluting the pool of nonperforms.”

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