A decreasing Covid-19 infection rate as vaccinations increase appears to be correlated with the delinquency rate of commercial mortgage-backed securities (CMBS), which dropped 23 basis points in October from the month before, according to a Nov. 5 report by Fitch Ratings.
The rating agency said the rate fell to 2.92% in October from 3.15% in September, when the third surge of Covid infections peaked and companies delayed reopening their offices. Fitch says the delinquency drop stemmed from few new delinquencies, strong resolution volume, and robust new issuance.
“Fitch expects the stable to declining delinquency trend to continue,” the report says.
New delinquencies in October were $302 million, less than half September’s $614 million, and the largest one was below $40 million, Fitch reports, adding that while 30-day delinquencies rose to $1.1 billion from $992 million, they remain well below the six- and 12-month averages of $1.9 billion and $2.6 billion, respectively.
The commercial-loan sectors that saw the biggest drops were student housing, multi-family housing, regional malls, and retail, at respectively 25.8%, 12.0%, 11.1% and 9.4%. Mixed-use, office and industrial properties were unchanged or barely changed, and hotels were down 6.2%.
Fitch says six regional malls were removed from its index, the largest of which was the $130 million RiverTown Crossings Mall loan secured by a regional mall in Grandville, Michigan.
“Although the loan is past its June 2021 maturity, it was recently brought current, through excess cash that is being trapped and is now being reported as performing matured,” Fitch says, adding that sponsor Brookfield Property Retail Group transferred the loan to special servicing a year ago for imminent monetary default.
The hotel delinquency rate continues to stabilize and fell 69 basis points month over month, with resolutions of $486 million nearly tripling the $137 million of new delinquencies. The largest new delinquency in October was the $37.4 million ITC Crossing South Shopping Center loan, which defaulted on its final October 2021 maturity date. Fitch notes that the loan is secured by anchored retail center in Flanders, New Jersey, and is fully cash managed with all excess cashflow being applied to principal paydown.
