Defaults on commercial mortgage-backed securities declined for the fifth straight year in 2015, though that streak appears set to come to a close, according to Fitch Ratings.
The annual default rate fell to 0.4% last year, after peaking at 4.1% in 2010. The cumulative default rate for loans backing commercial mortgage bonds fell to 13% from 13.3% in 2014.
“Commercial real estate markets had another good year in 2015 as the economy continued to grow, healthy new issuance volume provided ample liquidity and new construction remained generally muted,' Fitch Senior Director Brook Sutherland said in a press release.
However, Fitch expects term defaults to tick up slightly this year as the current credit cycle matures.
Many problem loans originated during the previous peak have already defaulted. That said, maturity defaults, or loans that cannot pay off at maturity, also stand to increase in the next few years as peak vintage loans, many of which are over levered, mature, said Sutherland
In total, 181 loans defaulted with a balance of $2.7 billion in 2015, compared with 294 loans totaling $3.9 billion in 2014 and 353 loans totaling $5.4 billion in 2013. Most of the new defaults came from loans originated the 2005-2007 period.
Office properties were the largest contributor to new defaults, with 64 loans going bad with a total balance of $1.4 billion.
Fitch expects the cumulative default rate to increase slightly in 2016, as CMBS 2.0 loans begin to default at a higher rate and new issuance volume declines.