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Late payments on CMBS loans drop again in October

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Late payments on securitized commercial mortgages dropped sharply in October, the fourth straight month in which it has fallen.

The delinquency rate for U.S. commercial real estate loans in CMBS is now 5.21%, a decrease of 19 basis points from the September level, according to Trepp. That is the second-largest rate drop measured in the last 19 months.

After hitting a post-crisis low in February 2016, the reading climbed consistently for more than a year as loans issued in 2006 and 2007 reached their maturity dates and were not paid off via refinancing. In the 16 months between March 2016 and June 2017, the delinquency rate moved up 13 times. Now that the wave of maturities has passed, delinquency levels are receding.

About $660 million in loans became newly delinquent in October, which put 16 basis points of upward pressure on the delinquency rate. However, that was offset by a nearly identical volume of loans which were cured last month. About $750 million in previously delinquent CMBS loans were resolved with a loss or at par in October. This shaved 18 basis points off of the October reading.

The October 2017 rate is only 23 basis points higher than the year-ago level, and two basis points lower year-to-date. This is the first time in 2017 that the year-to-date number has been lower than the final 2016 rate.

The reading hit a multiyear low of 4.15% in February 2016. The all-time high was 10.34% in July 2012.

The drop in late payments was seen across all five major property types tracked by Trepp. The delinquency reading for hotel loans posted the largest drop, falling 42 basis points to 3.42%. The industrial delinquency rate fell 31 basis points to 6.24%. The office delinquency rate decreased by 18 basis points to 6.92%. The retail delinquency rate slid eight basis points to 6.47%. The multifamily delinquency rate dipped two basis points to 2.98%.

Apartment loans remain the best-performing major property type.

Trepp expects the delinquency rate to continue to trend lower as now that most 2006 and 2007 loans have reached their balloon dates and distressed loans continue to be resolved.

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CMBS Commercial mortgages Commercial real estate lending Trepp