CMBS Delinquency Rate Reaches Lowest Yearly Level

The delinquency rate for commercial mortgage-backed securities reached its lowest level in a year, according to February data from Trepp.

In February, securitized commercial real estate loans 30 or more days late in payment fell 15 basis points to 9.42%. Furthermore, the percentage of loans seriously delinquent—60-plus days behind in dues, in foreclosure, REO, or nonperforming balloons) also decreased by 15 basis points and is now at 8.96%.

Overall, the CMBS delinquency rate has dropped 92 basis points since hitting a peak of 10.34% at the end of July 2012.

Loan resolutions decreased noticeably on a monthly basis, falling from $1.2 billion in January to just under a billion dollars through February. The removal of these loans from the delinquency category accounted for 18 basis points of downward pressure. An additional 40 basis point decrease in the delinquency rate occurred because of loans that cured.

However, there were $2.7 billion in newly delinquent loans, which put about 48 basis points of upward pressure on the overall rate.

Another ongoing offset to some of the downward pressure on the delinquency rate is the robust refinancing activity. Trepp said that with borrowing rates and CMBS spreads near record lows, refinancing activity will not only impact distressed loans, it will also lead to the removal of some performing loans from the equation.

Through February, Trepp said there is currently $51.8 billion in delinquent loans. Furthermore, $67.2 billion in loans are with the special servicer, representing about 3,300 loans.

Among the five major property types, hotel loans had a substantial 169 basis point improvement month-over-month, going from 11.77% to 10.08%. Despite the strong gains experienced in this sector, Trepp said these results are not that impressive as it seems.

“Many of the largest loans that ‘cured’ were ones that went from ‘nonperforming matured balloons’ to ‘performing matured balloons.’ This happened to be a number of portfolio loans that are floating rate,” the New York-based ratings agency said. “As a result, this month’s gains in the hotel sector turn out to be fleeting, as they may be driven more by reclassification of reporting.”

Trepp added that while both categories include loans that are past their maturity dates, performing matured balloons have an interest payment being made and are therefore not counted as delinquent. These performing loans that are past their balloon date represented 0.98% of the collateral as of February, which would have raised the overall delinquency rate 98 basis points.

Furthermore, apartment loans experienced a decrease too during this monthly time period, down 13.43% to 13.27%.

Meanwhile, the rates on both industrial and office loans were higher from January to February. The industrial CMBS rate increased from 11.32% to 11.79%, while office loans 30 or more days delinquent were up to 10.63%, a 15 basis point rise.

Lastly, the retail CMBS delinquency rate held steady at 7.79% on a monthly basis.