The percentage of securitized commercial loans paying off at maturity, when the bulk of the principal is due, dropped to 56.6% in March, according to Trepp.

This was about five basis points lower than February's 61.8% level.

The rate had exceeded 60% in five of the six prior months as more borrowers were able to refinance maturing commercial loans, and fewer negotiated an extension or went into default.

Despite the drop, the March payoff rate is well above the 12-month moving average of 50.9%.

By loan count (as opposed to balance), 63.2% of loans paid off in March. The 12-month rolling average on this basis is now 59.4%.

“Late last summer, we noted that the payoff rate could move to the upside,” Trepp said in a press release. “We mentioned that loans reaching their maturity date would likely be more heavily populated with loans from earlier vintages, and that assets from that time frame were made with lower leverage and more reasonable valuations. That trend was true for the better part of the last six months.”

Trepp noted that, over the last few years, a number of investors in the interest-only classes of older CMBS have bet that many of the loans will extend once they reach their maturity date. “That trade comes with more risk today than it did a year ago,” it said. 

The data provider noted that loans from older vintages will continue to have a much better chance of paying off on time than loans from 2007. However, even 2007-vintage loans, which are highly leveraged, have a better chance of being refinanced now that new issue CMBS spreads at extremely tight levels and the Treasury curve is near historic lows.

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