The CMBS delinquency rate considerably rose in October, according to Trepp. October showed delinquency rates for U.S. commercial real estate (CRE) loans in CMBS increasing 21 basis points to 9.77%.
The CMBS delinquency rate is currently at its second-highest level ever recorded. Only the 9.88% reading in July 2011 was higher. Trepp released a report this morning.
After a big drop in the delinquency rate in August, the rate has now risen for two consecutive months, Trepp reported.
The CMBS data provider said last month that the CMBS market's tone had been very negative since summer's start.
CMBS buyers saw spreads rising considerably and lenders retrenched from making new loans. Many CMBS investors started to think that the impressive CMBS rally from mid-2010 through May 2011 had taken the market too far and too fast, Trepp said in the report. CRE professionals also made similar comments regarding the lofty pricing of trophy properties in the U.S. earlier this year.
This negative sentiment was still there for most of October. Reports of layoffs at origination and trading shops on Wall Street has "jolted the market further," Trepp said. Spreads still trended quickly upward, ultimately hitting their highest levels since mid-2010.
Some investment bank researchers, according to Trepp gave very bearish predictions for the levels of CMBS issuance next year. With many 2007-originated five-year loans coming due in 2012, "the hope that new CMBS issuance would provide a safety valve of sorts for commercial real estate borrowers seemed more and more remote," Trepp said.
The market was given some respite in late October when a European bailout program was announced. The news actually lifted almost all U.S. equity and debt markets, with CMBS not being an exception. The announcement actually gave CMBS spreads a push sharply lower and gave more hope that the worst was behind the market.
But, an improvement in CMBS spread levels as well as a reduction in market pessimism takes time to show itself in the CMBS delinquency rate, Trepp stated in today report.