More data show CMBS delinquencies have been climbing at a notably slower rate, but experts are still seeing downgrades increase and more challenges ahead.
Standard & Poor’s just-released monthly CMBS report for October bears out a trend also seen in some other companies’ data showing a recent notable improvement in the delinquency rate, but it also shows rating changes climbed during the month and the percentage of ratings dropping to an extremely low grade hit a high for the year at 41%.
During October, S&P found the delinquency rate dropped for the first time in 13 quarters, dropping 6 basis points from September to 8.26%. Earlier this week the National Association of Realtors said it is feeling somewhat hopeful about the commercial real estate market, projecting that vacancy rates in the non-residential sector will improve in the coming year.
Earlier this month Trepp also in its October data noted what it said was the first decline in delinquencies seen in more than a year. An S&P spokeswoman said November data was not available at press time.
S&P credit analyst Larry Kay said in a press release that loan modifications, particularly maturity extensions, have taken some pressure off the market.
S&P attributes the relative slowdown in CMBS delinquency growth through the third quarter of 2010 (compared to the growth rates seen in 2008 and 2009) to increases in loan resolutions, property sales, continued high levels of modifications, improving property fundamentals and an increase in originations.
Kay said he thinks some of this momentum will continue in 2011 but ultimately will depend on the level of job growth and consumer spending. He noted that maturing loans could continue to add to delinquency pressures through 2012.
Fixed-rate loans maturing in the next two years will include a significant amount of five-year term loans originated in 2006 and 2007, years in which many mortgages of this type had high leverage and aggressive underwriting, according to S&P.
In addition, the S&P report indicated that floating-rate maturities are poised to spike by almost 291% in 2011 compared to 2010.
The upside in CMBS is likely to be limited unless there is rent recovery or property equity buildup, and downgrades will likely remain high next year, said S&P credit analyst Eric Thompson in the press release.