NEW YORK CITY—The delinquency rate for CMBS took a significant turn for the better in May, with both Trepp and Fitch Ratings reporting double-digit declines in the overall late-pay rate. However, their monthly reports, as well as a Standard & Poor's update on expected loss projections, make it clear that the rate of improvement continues to vary by property type.

S&P's study, which includes expanded coverage of 2015-vintage deals the company has rated, addresses losses by transaction, vintage, property type and market type. Not surprisingly, realized and expected losses are highest for CMBS originated between 2006 and 2008.

“Of the five core property types within the reviewed transactions, the realized losses incurred to date range from 3.7% for office and 4.1% for retail,” says S&P credit analyst Tamara Hoffman. “We expect multifamily to experience the lowest total projected loss, at 6.5%, and office to have the highest total projected loss, at 9.2%.” Second-lowest, according to S&P is hotel CMBS, for which the total project loss rate has improved 120 basis points over the past year to 7.9%.

Judging by May's results, Fitch finds that retail is now the worst-performing property type among Fitch-rated CMBS loans; Trepp grants that dubious distinction to multifamily, which the analytics firm has ranked at the bottom for some time. In a month that saw its delinquency rate decline by 20 bps to 5.26%, retail lagged all other sectors for the first time since Fitch began tracking delinquencies formally in 2004.

Historically, says Fitch, hotels and multifamily have experienced the highest CMBS delinquency rates. The only loans with balances of greater than $100 million to enter the Fitch delinquency index over the past 12 months have been three deals backed by retail properties, all from the '06 to '08 period.

In fact, hotel had the highest delinquency rate in April at 5.53, but its 35-bp improvement in May was better than the retail sector's, according to Fitch. Multifamily, which was the second-worst performer in April, is now third behind retail and hotel thanks to a 16-bp improvement to 5.03%

Actually, the multifamily rate is as high as it is on a strength of a single loan: the $2.75-billion worth of Fitch-rated transactions for the 2006 Peter Cooper Village/Stuyvesant Town acquisition. If the Stuy Town deal were removed from the equation, apartment CMBS would be the best performing of the major property types by a comfortable margin, according to Fitch.

Using a different denominator than Fitch, Trepp ranks multifamily as the worst performer, with an 8.62% delinquency rate, albeit 30 bps lower than in April. Best performing is hotel CMBS, which as of May was comfortably ahead of all other property types at 3.8% after a 38-bp drop, Trepp says.

The differences among property types don't undercut the notable overall improvement in CMBS delinquencies, though. Following a period of single-digit declines in the late-pay rate, May was marked by 19-bps in delinquencies among Fitch-rated loans to 4.48%. The 17-bp drop to 5.4% for the month of May reported by Trepp was almost twice as large as the nine-bp decline over the first four months of 2015, the biggest monthly improvement since November 2014.

“Conditions remain very favorable for the CMBS new issue market as spread volatility was incredibly low in May,” says Manus Clancy, senior managing director at Trepp. “Distressed legacy loans continue to get flushed through the system, and every month we seem to see more trophy properties sell at record-level valuations.”

Instant Insights /

Sectors Still Lag as CMBS Late-Pays Improve

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