Late payments on securitized commercial mortgages resumed rising again in June, as more borrowers who took out loans just before the financial crisis had trouble refinancing at maturity.
The Trepp CMBS Delinquency Rate increased by 28 basis points during the month, the largest amount in over five years. The delinquency rate for U.S. commercial real estate loans in CMBS is now 5.75%.
After hitting a post-crisis low in February 2016, the reading has consistently climbed over the past year as loans from 2006 and 2007 have reached their maturity dates and have not been paid off via refinancing. However, the last time the rate increased this much was in March 2012. The rate has moved up in 13 of the last 16 months.
Delinquency readings for all five major property types increased in June, including an increase of over 100 basis points in the multifamily sector.
Delinquencies are still not nearly as high as many had feared they would be this point in the economic cycle. A few years ago, participants eying the “wall” of commercial mortgages coming due in 2016 and 2017 were concerned that many more 2007 vintage loans would fail to pay off when they reached their maturity dates.
The 28-basis-point jump is also well below the increases seen throughout 2010, when the delinquency rate would regularly climb by 40 basis points or more each month.
The June 2017 rate is now 115 basis points higher than the year-ago level, and 52 basis points higher year-to-date. The reading hit a multi-year low of 4.15% in February 2016. The all-time high was 10.34% in July 2012.
About $2.4 billion in loans became newly delinquent in June, which put 58 basis points of upward pressure on the delinquency rate. About two-thirds of that $2.4 billion came from loans that reached their balloon date and did not pay off. A reduction in the denominator also helped push the delinquency rate higher, as over $10 billion in performing loans paid off.
Over $400 million in loans were cured last month, which helped push delinquencies lower by 10 basis points. About $1.3 billion in CMBS loans that were previously delinquent were resolved with a loss or at par in June. Removing those previously distressed assets from the numerator of the delinquency calculation moved the rate down by 31 basis points.
The industrial delinquency moved up 20 basis points to 7.57%; it remains the worst performing sector.
The delinquency reading for lodging rose 11 basis points to 3.53%. Hotel loans are now the best performing major property type.
The multifamily delinquency rate spiked 110 basis points to 3.92%. Apartment loans are no longer the best performing major property type after two large portfolio loans failed to pay off in June.
The office delinquency rate increased 21 basis points to 7.46%.
The retail delinquency rate rose 15 basis points to 6.65%.