After months of volatility, the delinquency rate for securitized U.S. commercial real estate loans has regained some stability, according to Trepp.
The Trepp CMBS delinquency rate held at 9.71% in December 2012, unchanged from the previous month.
From early 2012 through the end of the summer, the CMBS delinquency rate bounced around considerably. Large movements during the first six months of the year were caused primarily by the high number of five-year loans that were securitized in 2007. As these loans reached their maturity dates and could not be refinanced, the delinquency rate was pushed to a record high of 10.34% in July.
These troubled loans are now behind the market and the next wave does not come due until 2014, according to Trepp. Therefore, any movements in the delinquency rate should be modest in the near future.
There are indications that this movement is likely to be positive, with the delinquency rate declining further in the coming months. Trepp said special servicers continuing to resolve non-performing loans and new CMBS deals are being added to the index, diluting the pool of non-performers.
The number of newly delinquent loans decreased from November to December, totaling around $3.2 billion last month. The number of delinquent loans resolved with losses also decreased, with just over $1.1 billion resolved.
Among the major property types, office was the only segment to see a higher delinquency percentage in December. Loans backed by offices saw their rate jump 29 basis points last month, to 0.66%.
This weakness was enough to offset improvements in the performance of other major property types. Delinquency rates for loans backed by industrial property declined by 24 basis points to 11.24%, the rate for loans backed by lodging property declined by 51 basis points to 11.73%, the rate for loans backed by multifamily properties declined by 23 basis points to 13.98%, and the rate for loans backed by retail properties dropped by 13 basis points to 7.62%.
“Despite the fact that the delinquency rate has leveled off once again, it’s been a spectacular run” over the last six months,” said Manus Clancy, senior managing director of Trepp. “Not only did the world not end on December 21, but spreads have plummeted 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.”
While Trepp anticipates the delinquency rate will be steady over the next few months, refinancings are expected to increase as a result of borrowing rates and CMBS spreads being at record lows. Additional refinancing activity will lead to the removal of some performing loans.
