CMBS delinquency rate reaches its lowest point since early 2009

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The delinquency rate for commercial mortgage-backed securities ended 2019 at its lowest point in nearly 11 years, aided by increased issuance and the resolution of legacy transactions, Fitch Ratings said.

At the end of December, the CMBS delinquency rate dropped to 1.45% (representing an unpaid principal balance of $6.5 billion), down 7 basis points from 1.52% for November and 74 bps below where it was one year earlier (an $8.9 billion UPB).

Fitch-rated new issuance volume of $10.1 billion from 11 transactions in November outpaced portfolio runoff of $2.0 billion; that led to a higher index denominator. At the same time loan resolutions last month of $299 million exceeded new delinquencies of $136 million. The current delinquency rate at the lowest level since February 2009.

Back in October, Morningstar DBRS projected a slowing U.S. economy during the fourth quarter would not hurt CMBS performance. But it expected an increase in late payments in 2020.

There are $8.9 billion of CMBS 1.0 still outstanding, of which $3.9 billion is delinquent, Fitch said. The delinquency rate for CMBS 2.0 in December was 60 BPs, down 1 BP from November, but up from the 37 BP rate recorded in December 2018.

By property type, delinquency rates were flat or lower than they were one year ago.

Most notably, the retail sector had a 3.79% delinquency rate, down from 3.97% in November and 5.05% at the end of 2018.

The overall retail delinquency rate dropped due to $197 million of resolutions exceeding $76.7 million of new delinquencies. Regional malls securing two CMBS 1.0 transactions were the largest resolutions during the month, which covered $129 million of the UPB outstanding.

But the largest new delinquency also was a retail mall, the $27.4 million Hickory Point Mall loan, secured by a 424,700 square foot portion of an 824,102 square foot property in Forsyth, Ill.

While multifamily delinquencies remained very low at 44 basis points in December, the student housing delinquency rate rose to 3.98% from 3.94% in November due to the $3.7 million UW Whitewater Student Housing loan becoming delinquent during the month.

Previously Fitch expressed concern that newly originated CMBS would likely face higher interest rates if they needed to refinance at maturity.

Separately, Standard & Poor's has identified 39 regional mall loans backing CMBS with balances over $25 million to keep an eye on as a wave of maturities is expected through 2025.

"The next six years look to represent a particularly busy stretch for mall loan maturities, with $14.3 billion of our $18.8 billion performing CMBS mall loan population (over 75%) coming due through 2025," an S&P press release said. "In fact, each of these years sees over $1.8 billion in performing mall loan maturities, with 2021 and 2025 coming closest to the $3.0 billion mark."

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