Leish: We stopped tracking
distress because there wasn't
a market for it.

WASHINGTON, DC-At one point the level of distress commercial real estate was close to $200 billion, according to Delta Associates, which tracked these figures and released them quarterly to the waiting-with-baited-breath commercial real estate industry. What that number is today, though, Greg Leisch, president of Delta Associates, couldn’t tell you.

“We stopped tracking it,” he tells GlobeSt.com. “There’s no longer a demand for the information or demand for distress services—and that is a market indicator in itself I would guess.”

Not to worry, though. There are plenty of other statistics that capture the progress of commercial real estate loan delinquencies. The Mortgage Bankers Association, for instance, has released its Commercial/Multifamily Delinquency Report. Among its choicer findings, according to Jaime Woodwell, MBA’s vice president of Commercial Real Estate Research: the delinquency rate on bank-held loans is at its lowest level since the beginning of 2009. CMBS is doing relatively well, too, he says, with the delinquency rate for these loans, while still elevated, continuing to stabilize.

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“If one removes the CMBS loans that are in foreclosure or REO, that delinquency rate is at its lowest since late 2009,” he says. Finally, Woodwell says, “commercial and multifamily mortgage delinquency rates for loans held by life companies, Fannie Mae and Freddie Mac all remain extremely low.”

Based on the unpaid principal balance of loans, delinquency rates for each group at the end of the third quarter were as follows:

• Life company portfolios: 0.12%

• Freddie Mac: 0.27%

• Fannie Mae: 0.28%

• Banks and thrifts: 2.93%

• CMBS: 8.8%

Not that the trajectory is a straight line heading south. Trepp released its figures for CMBS last week and found that the delinquency rate for commercial real estate loans in CMBS rose two basis points in November to reach 9.71%, a tick upward that came after three consecutive months of decline. One of the main contributors to the rate moving up in November was an increase in newly delinquent loans, Trepp says. November saw around $3.7 billion of such loans, compared to $2.6 billion in October.

“The market cooled off somewhat in November,” says Manus Clancy, senior managing director of Trepp, in a prepared statement. “After months of seeing spreads plummet and delinquency rates fall, both inched up in November.” Still, he adds, CMBS continues to be issued at a high rate and enthusiasm for the asset class remains high.

There are a number of reasons for the industry’s improvement, Leisch says, most of which are well known. Interest rates remain low and the economy, while still tepid, is clearly improving. Also, property valuations are rising. The Green Street Commercial Property Price Index, for instance, increased by 2% last month. Property values are now, on average, within a couple of percentage points of their ’07 highs, the company says. There is, in short, a great deal of money flowing into the sector Leisch says. “But really, what is the alternative for yield otherwise?”