The long-expected leveling off of the U.S. CMBS delinquency rate has become a reality in August, according CMBS data provider Trepp.
In the last few months, Trepp had projected that its CMBS Delinquency Rate would hit a high point in the early to mid-summer and then decelerate in 2H12. That theory happened this month when the delinquency rate dropped precipitously.
The delinquency rate for U.S. commercial real estate (CRE) loans backing CMBS plunged 21 basis points to 10.13% in August. This dip happened after five straight months where the rate rose, which covered three months that set all-time records. This was the biggest single-month decrease since November 2011.
According to Trepp, the rate's improvement was mostly due to two factors. One of them was that the loan resolutions stayed high. Almost $1.5 billion in loans were resolved in August with losses. These loans that were taken out from the delinquent loan category comprised roughly 26 basis points of downward pressure on the delinquency rate.
The other driving force behind August's lower rate was that most of the 2007 securitized loans have gone pass their maturity date. The upward pressure that these loans placed on the delinquency rate when they could not be refinanced upon maturity has mostly been taken out.
Major property types such as the apartment, lodging and office sectors all improved. The lagging segments were industrial and retail loans, with their rates drifting higher in August, Trepp reported.
Loans that were newly delinquent — around $3.3 billion in total — put upward pressure of about 57 basis points on the rate. This was a huge dip versus July when newly delinquent loans resulted in an increase of 81 basis points ($4.6 billion). Loans that cured — roughly $2.8 billion — put downward pressure of 48 basis points on the rate in August.
Taken together, the loan resolutions', loan curing and newly delinquent loan created a 17 basis point net rate drop. A category to keep in mind are loans that are past their balloon date although current in their interest rate or what are known as "performing balloons," the data provider said.
This category currently comprises 1.13% of loans in the database, decreasing 16 basis points in August. If these loans were considered late, the delinquency rate would have been 11.26%.
Based on this, the August delinquency rate was down 37 basis points from the July rate with the performing balloons forming part of it, Trepp said.
The overall U.S. CMBS delinquency rate decreased to 10.13%, dropping 21 basis points in August.