NEW YORK CITY—CMBS offered its own version ofthe October surprise by posting an unexpected uptick in thedelinquency rate. Trepp LLC saysthe increase of 11 basis points for October was the largest upturnin CMBS late-pays in more than two years, while the currentdelinquency rate of 6.14% is the highest since this past May.

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On the other hand, Trepp notes that October's rate is 184 bpslower than the year prior. Year-to-date, delinquencies have fallen129 bps from 7.43% at the end of December 2013. Additionally, Treppsays the the total amount of delinquent loans remained flatmonth-over-month, at $38.1 billion, despite an uptick in newdelinquencies.

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“Considering the aggressive rate at which special servicers havebeen burning off loans in distress over the past two years, it wasinevitable that the delinquency rate would start to level off,”says Manus Clancy, senior managing director atTrepp. “We expect more muted gains over the next few months than wegrew accustomed to in '13 and early 2014.”

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Research analyst Joe McBride notes that theliquidation of distressed CMBS loans has slowed down markedly overthe past six months. The average volume of loans liquidated withlosses over the past six months is $1.05 billion per month, asignificantly lower level than the $1.54-billion average that wasseen six months prior. The slower resolution of distressed loans,paired with a slight uptick in new delinquencies and more healthyloans paying off, have combined to slow the ever downward march ofthe delinquency rate.

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With the exception of the office delinquency rate, all readingsby major property type worsened in October. Multifamily'sdelinquency rate increased 81 bps in October to 9.80%, securing itsposition as the worst performing property type. At 29 bps, lodgingCMBS saw the second greatest month-over-month increase, but hotelsremain the best performing property type, with a late-pay rate of5.35%.

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Taking a longer view—a quarterly view, in fact—FitchRatings reports that legacy US CMBS performance hascontinued to stabilize while new deal volume has increased, alongwith leverage. Those are among the findings in Fitch's latest CMBSquarterly index.

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Loans originated in 2004 are of particular interest, Fitch says.Approximately $2.3 billion in loans issued within this vintagerepaid, defeased or were otherwise resolved during the thirdquarter. Accordingly, the remaining delinquencies and speciallyserviced loans as a percentage of '04-vintage deals jumped to20.33% and 20.43% as of Sept. 30. That compares to 10.14% and14.18% as of June 30.

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“The remainder of 2004 CMBS loans are still susceptible toadverse selection,” says Mary MacNeill, managingdirectior with Fitch. In terms of absolute dollars, delinquent '04loans increased 22% in Q3 compared to Q2, while specially serviced'04 loans actually decreased 12%.

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Meanwhile, even as CMBS loans of '04 and earlier suffer fromconcentration issues, metrics on deals from the peak of thecycle—2005 to 2007—improved slightly last quarter. The dollaramount of delinquencies fell 1.3% on the quarter, while the dollaramount of loans in special servicing fell by 3.5%, says Fitch.

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Paul Bubny

Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. 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.