Late pays on CMBS loans unexpectedly fall in May

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Late payments on securitized commercial mortgages fell in May, bucking the trend of the past year. But all of the improvement came from office buildings.

The delinquency rate for U.S. commercial real estate loans in CMBS is now 5.47%, a decrease of five basis points from April, according to Trepp.

Only the office delinquency rate fell, by 51 points to 7.46%. Readings for the four other major property types moved higher. The industrial delinquency rate moved up 22 basis points to 7.37%; the reading for lodging notes moved 20 basis points to 3.42%; the multifamily delinquency rate climbed 16 basis points to 2.82%; and the retail delinquency rate increased 20 points to 6.5%.

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. Commercial mortgages typically have 10-year terms and amortize very little; the bulk of the principal is repaid in a final, “balloon” payment. This can make it difficult to refinance if the value of a property declines.

“Last month, we noted that it was hard to see the rate going down anytime in the near future,” Trepp stated in its monthly report. “We still believe that as pre-crisis loans reach their balloon dates, the rate should continue to inch higher over the next few months.”

The delinquency rate is now 112 basis points higher than the year-ago level, and 24 basis points higher year-to-date. The reading hit a multiyear low of 4.15% in February 2016. The all-time high was 10.34% in July 2012.

In its report, Trepp pointed to a few large, past-due loans that were once nonperforming but have been reclassified as performing, despite their inability to refinance, which it described as a “somewhat fickle” category. “Had these loans remained 'nonperforming, past maturity,' then the May rate would have been higher than April's,” it stated.

About $1.7 billion in loans became newly delinquent in May. This put 40 basis points of upward pressure on the delinquency rate. About $1.15 billion in loans were cured last month, which helped push delinquencies lower by 27 basis points. About $735 million in CMBS loans that were previously delinquent were resolved with a loss or at par in May. Removing those previously distressed assets from the numerator of the delinquency calculation moved the rate down by 17 basis points.

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