NEW YORK CITY-March’s CMBS delinquency rate reached its highestlevel ever in March, climbing three basis points to 9.42%, Treppreported Tuesday. On the other hand, the locally based CMBSinformation provider’s latest report notes that it’s only athree-bps increase, providing further evidence that “the market ishealing.”

For two months in a row, “we’ve seen the delinquency rate increasein the low single digits,” representing “some of the best readingswe've seen since the credit crisis began,” Trepp managing directorManus Clancy says in a release. “We believe that the overalldelinquency rate will continue to rise over the next six months,but at a pace similar to what we've seen recently, not the 40-bpjumps that we saw in 2009 and early 2010. You cannot discountentirely, however, the possibility that we see the rate declineslightly in one of these months.”

Trepp says the overall delinquency rate of loans past due at least30 days is benefiting from new CMBS issues included in thestatistics. With the securitization market enjoying aresurgence—Standard & Poor’s put the value of new US CMBSissues for the first quarter at $8.7 billion—the relative goodhealth of new product is likely to push the delinquency rate lower,according to Trepp. CMBS deals from 2010 are now showing up inTrepp’s calculations; the firm includes CMBS issues after they’veseasoned for six months.

Similarly, ratings agency Realpoint, based in Horsham, PA, says inits most recent CMBS report, “As the market continues to grow in2011, some delinquency growth experienced in the trailing 12 monthswill obviously be offset by any new issuance’s speed to market. Asliquidations of severely distressed defaulted loans picked up speedin the latter half of 2010, and modifications or forbearance at theloan level continue to be discussed between borrowers and specialservicers, there may be a delinquency ‘leveling-off’ period”through the end of this year.

Worst-performing of the major property types remains multifamily,although Trepp notes a 40-bp drop to 16.21%. The hotel sector iscoming up on multifamily from the opposite direction, with a steep136-bp increase to reach 15.97% at the end of March, Trepp says.Industrial’s delinquency rate has fallen 19 bps since February toreach 10.25%, while retail is in fourth place with a 7.72%delinquency rate after a nine-bp decline. Office remains thebest-performing sector, although it rose slightly to reach 7.13%during the month.

Among highly seasoned CMBS transactions, balloon default risk is alooming possibility “as loans are unable to pay off as scheduled,”according to Realpoint. In many instances, collateral propertiesthat have otherwise generated stable cash flow can’t refinancetheir balloon payment at maturity, mostly due to a lack ofavailable refinance sources, according to the ratings agency. “Insome cases, little or no amortization has taken place due tointerest-only payment structures, while collateral values have alsodeclined.”

Further, Realpoint notes that large floating-rate loan refinanceand balloon default risk continues to grow. “Many such large loansare secured by un-stabilized or transitional properties reachingfinal maturity extensions (if they have not done so already), orfail to meet debt service or cash flow covenants necessary toexercise in-place extension options.”

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Paul Bubny

Paul Bubny is managing editor of Real Estate Forum and He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.