NEW YORK CITY—Even as multiple indicators have the delinquency rate for CMBS continuing to tick upward, it's fair to draw a distinction between legacy securitizations and new issues. Fitch Ratings' Loan Delinquency Index for CMBS 1.0 transactions ended the first quarter at 20.49%, nearly double what it was 15 months earlier—yet Fitch also notes that the share that legacy deals have of the Fitch-rated CMBS pie overall is less than half of what it was at the end of 2015: 38% then, 16% now. By contrast, post-2008 CMBS ended Q1 with a delinquency rate of just 0.16%, according to Fitch.

Along similar lines, Trepp LLC reported earlier this week that the late-pay rate for CMBS ticked upward yet again in April, climbing 15 basis points to 5.52%. Yet of the $2.5 billion in newly delinquent loans, nearly one-third of the total is accounted for by just five loans totaling $800 million, all of which failed to pay off at their balloon dates.

“We've noted repeatedly that it is hard to see the rate going down anytime in the near future,” according to a Trepp report earlier this week. “It's a prediction we stand by, as pre-crisis loans continue to reach their balloon dates every month. If a loan posted strong financials in conjunction with an impressive tenant roster, chances are that the loan would have been defeased or paid off at its earliest 'free' period.”

With this in mind, Trepp says, “it's assumed that the loans that reach their maturity dates are of weaker credit quality and don't meet today's lending standards. In addition, the loans coming due now were made toward the end of the 2007 cycle and underwritten very liberally. So don't be surprised if the delinquency rate continues to rise.”

Morningstar Credit Ratings on Wednesday reported that CMBS delinquencies inched up by one bp in March to 3.05%. Yet they've hovered around 3% for the past nine months, Morningstar says, and the agency anticipates continued moderation in the delinquency rate as an increase in the volume of newly delinquent loans, many of which will default at or near maturity, will be offset by payoffs and liquidations.

“We expect the maturity payoff rate to fall because of the lower credit quality of maturing loans,” according to Morningstar's report. “Even though the refinance rate for the first three months of this year averaged 73.2%, we project that only about 60% of the nondefeased loans coming due in 2017 will be able to refinance.” About 75% of the loans that became delinquent in March were circa-2006 or '07, according to Morningstar.

As for the very newest securitized commercial mortgage deals, they're the first to come to market under a new regulatory regime. The risk retention rule, mandated under Dodd-Frank and in effect since this past Dec. 24, had been expected to put a damper on new issuance when coupled with other regulatory frameworks. Yet Trepp's Catherine Liu reported late last month that thus far, this hasn't been the case.

“With the ﬁrst quarter of the year ﬁrmly behind us, we observe that the industry has digested these changes better than most would have predicted, and the favorable pricing and reception garnered by risk retention deals issued so far bodes well for upcoming CMBS transactions in the pipeline,” Liu wrote in a blog posting. That's the case even with the relatively modest $10.5-billion total balance of the 13 private-label deals that closed in Q1.

New York

Instant Insights /

CMBS 2.0? Healthy. Legacy Deals? Not So Much

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