CMBS Delinquencies Increase for the Fifth Consecutive Month
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NEW YORK CITY-After predicting that the CMBS delinquency rate would plateau following a four-month-straight climb, the latest numbers from Trepp LLC show that the numbers are still steadily rising. In its latest monthly report, Trepp reports that the CMBS delinquency rate rose to 10.34% in July, an increase of 18 basis points from June (10.16%), and a rise of 97 basis points since February (9.52%).
Manus Clancy, senior managing director at Trepp, tells GlobeSt.com that the company previously forecasted that the troublesome class of 2007 loans that had reached their balloon dates but were not refinanced would hit a peak by the first half 2012 and level off in the second half. But after the rate cracked 10% in May and continues to creep up, Clancy says it may take a little more time for the rate to normalize once again.
“These loans are not getting resolved, and it’s like the traffic in London over the last few weeks,” he says. “We’ve seen some newly delinquent 30-day loans for the first time that pushed up the rate as well. It’s just evidence that we are far from out of the woods, but at the same time, we are sticking by our prediction over the next couple of months where we predict a leveling off.”
The spike in the delinquency rate (as illustrated above) was driven by a big increase in multifamily loans and “general weakness” in four of five major property types. Though it remains strong on the investment sales front, the multifamily delinquency rate remains the worst major property type, moving up 52 basis points with a rate of 15.69%, mainly due to large loans like Stuyvesant Town/Peter Cooper Village, Clancy explains. "It would be about four points less without Stuy Town all by itself, so instead of being 14% or 15%, we would be more like 11%," he says. "It was largely the stuff in ’06 and ’07 that really just crushed this part of the market."
In addition, the office delinquency rate jumped 24 basis points to 10.69%, the industrial climbed up 18 basis points to 11.72% and the hotel rate increased by 11 basis points, pushing it over the 13% cliff.
The only sector that showed some time of improvement was retail, falling by 14 basis points to 8.03%. “It has been the best performing major property type, but it’s hard to say why that has done better than everything else,” Clancy says. “It might be a totally different number if GGP hadn’t been able to go through and restructure all of their loans and come up with more favorable terms, then we might be talking about a different story. But for right now, it remains the best performer.”
In a second opinion, David Tobin, principal of Manhattan-based Mission Capital Advisors, says in a statement that the delinquency rate remains elevated because all vintages of originations are experiencing negative market pressures. “These include persistently high unemployment, which directly affects office and industrial demand and secular changes in how retail real estate interacts with consumers - or doesn't as the case may be,” he says. “In addition, the continued divergence of real estate recovery between the gateway markets in the US, 48% of real estate stock above $2.5 million, and the remainder of the market, as evidenced by Moody's CPPI Six City Index, suggests that vintage CMBS loan performance will continue to exhibit similar delinquency. The overarching concern of special servicers and banks with similar loan collateral should be this continued delinquency despite generational lows in capitalization and interest rates. QE'3 should be interesting to watch play out.”
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