CMBS data provider Trepp reported that after dropping below the 10% mark in September, the delinquency rate should still experience significant downward pressure in the months to come.
This is what happened in October when the rate saw its largest drop in 14 months. The delinquency rate for commercial real estate (CRE) loans in CMBS dropped 30 basis points to 9.69% in the month.
The loan resolutions stayed high in October, Trepp said. More than $1.5 billion in loans were resolved in October with losses. The removal of these loans from the delinquent loan category made up 28 basis points of the downward pressure on the delinquency rate, the data provider said.
Loans that were newly delinquent, which made up roughly $2.6 billion in total, put upward pressure of approximately 46 basis points on the rate. This was considerably less than September’s $3.3 billion of newly delinquent loans that were a factor in the 59 basis points of upward pressure, according to Trepp. The loans that cured in October put downward pressure of 45 basis points on the rate, which meant essentially offsetting the amount of loans that became delinquent, Trepp said.
Taken together, the effect of the loan resolutions, the mortgages curing, and the newly delinquent loans resulted in a net improvement of 27 basis points in the rate. The remaining three basis points were due to a repayment of performing loans, loans becoming defeased, the amortization of existing loans, and the addition of new deals to the pool.
Among the major property types, only the multifamily segment weakened in October. Meanwhile, the office, retail, lodging, and industrial sectors experienced improvements month-over-month.
The improvement might not be over yet, the data provider said. Trepp sees no reason for the loan volume being resolved each month to drop. It also mentioned that borrowing costs are still extremely low while the distressed real estate appetite is still high. This should give special servicers the chance to continue to operate at expeditiously in the foreseeable future. Additionally, Trepp said that given that new-issue CMBS all-in rates are extraordinarily low and new issuance levels are growing, some marginal properties that had dim prospects for refinancing 12 months ago can actually get taken out now.
The issuance rise will have a dilutive effect on the numbers, as new, “clean” loans get added to the universe (Trepp includes new deals six months after issuance). Together with the expected high resolution volume, these loans will still put downward pressure on the overall rate.
The overall U.S. CMBS delinquency rate fell to 9.69%, decreasing 30 basis points in October.
The percentage of loans 30+days delinquent or in foreclosure: October (9.69%); September (9.99%); and August (10.13%).
The percentage of loans seriously delinquent (60+ days delinquent, in foreclosure, REO, or non-performing balloons) is now 9.16%, down 27 basis points for the month.
If defeased loans were removed the overall 30-day delinquency rate would be 10.10% — decreasing 27 basis points, Trepp said.
There are now $54.6 billion delinquent loans. This number does not include loans that are past their balloon date but are current in their interest payments.
There are $71.3 billion in loans with the special servicer. This makes up just more than 3,700 loans.
Meanwhile, Trepp gave the following figures for a historical perspective: a year ago, the U.S. CMBS delinquency rate was 9.77% while six months ago, it was 9.80%.
It also noted that a year ago, the rate of loans seriously delinquent was at 9.21% while six months ago, this same rate was at 9.41%.
In terms of the multifamily delinquency rate, Trepp said it has moved higher while the delinquencies on all other major property types have gone down.
The industrial delinquency rate shed 68 basis points and is now 11.53%.
The lodging delinquency rate dropped 92 basis points to 11.24%. However, the multifamily's sector delinquency rate rose 17 basis points and it is still the worst major property type with a rate of 14.26%.
Meanwhile, the office delinquency rate plummeted 28 basis points to 10.20% and the retail delinquency rate dipped by six basis points to 8.03%. It remains the best performing major property type, Trepp reported.