Late Pays on CMBS Loans Rise Again in April, to 5.52%

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Late payments on securitized commercial mortgages rose again in April as a large amount of loans matured and borrowers were unable to make a final, balloon payment.

The delinquency rate for U.S. commercial real estate loans in CMBS is now 5.52%, an increase of 15 basis points from March, according to Trepp. 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. The rate has ascended in 12 of the last 14 months.

The rate is now 129 basis points higher than the year-ago level, and 29 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.

In its monthly report, Trepp stood by its prediction that the delinquency rate is unlikely to go down anytime soon. That’s simply because of adverse selection; strong market conditions over the past several years have allowed borrowers to refinance better loans ahead of time.

“If a loan posted strong financials in conjunction with an impressive tenant roster, chances are that the loan would have been defeased or paid off at its earliest ‘free’ period,” the report states. “With this in mind, it's assumed that the loans that reach their maturity dates are of weaker credit quality and don't meet today's lending standards.

 In addition, the loans coming due now were made towards the end of the 2007 cycle and underwritten “very liberally.”

Delinquency rates for four of the five major property types increased in April. The industrial delinquency rate moved up 12 basis points to 7.15%; the multifamily delinquency rate inched up six basis points to 2.66%.; the office delinquency rate jumped 59 points to 7.97%; and the delinquency rate for retail loans increased 18 basis points to 6.30%. Only the delinquency reading for lodging notes dropped, by 48 basis points to 3.22%.

Almost $2.5 billion in loans became newly delinquent in April. This put 58 basis points of upward pressure on the delinquency rate. Almost $800 million in loans were cured last month, which helped push delinquencies lower by 19 basis points. About $864 million in CMBS loans that were previously delinquent were resolved with a loss or at par in April. Removing those previously distressed assets from the numerator of the delinquency calculation moved the rate down by 20 basis points.

A sizable portion of the newly delinquent balance from April can be attributed to a group of four loans. Each of those notes carry a balance in excess of $120 million, and reached their maturity dates without payoff.

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