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Trepp: Multifamily CMBS Weak

WASHINGTON—Multifamily occupancy and rents rates have held up fairly well during the deep recession, yet delinquencies on securitized multifamily loans recently hit a record high in December.

It appears the problem is not a question of bad properties or low occupancy rates, says Trepp managing director Manus Clancy.

The cause is “over-leveraging” by real estate companies that didn’t leave any room for error—and “bad underwriting,” Clancy told Mortgage Servicing News.

These weaknesses were compounded in New York where investor groups purchased rent-controlled projects like the 11,000-unit Stuyvesant Town and Peter Cooper Village development in Manhattan with the hope that they could water down tenant protections and jack up rents.

Last March, when Tischman Speyer Properties and BlackRock Realty defaulted on $4.4 billion in loans, including $3 billion in senior mortgages, it sent the Trepp multifamily MBS delinquency rate up 330 basis points to 13%.

Since then, the 30-day-plus delinquency rate on multifamily mortgage-backed securities climbed to 16.48% (as of December), according to figures compiled by Trepp LLC, which tracks commercial MBS.
“Multifamily remains the worst performing property type,” says Trepp. Next on the list is lodging properties with a 14.3% delinquency rate. (A year ago, the 30-day plus delinquency rate on multifamily mortgage securities was 9.27%.)

In contrast to CMBS, the top performing sector of the REIT industry is apartments, according to the National Association of Real Estate Investment Trusts. Investors in the shares of apartment REITs saw the value of their stock rise by a stunning 47% in 2010.

“REITs don’t have the leverage problem,” Clancy said. “There is great investor demand for REITs that didn’t take on a whole lot of leverage and are well managed,” he added. ♦