NEW YORK CITY—A pickup in CMBS issuance in the latter part of the year is one of the primary factors behind a continued improvement in the delinquency rate for securitized commercial mortgages. Morningstar Credit Ratings LLC said Monday that September's late-pay rate slipped eight basis points to 2.94%, marking the third consecutive month of declines in the delinquency rate for CMBS. Fitch Ratings told broadly the same story earlier this month, as did Trepp LLC in reporting the September numbers.

September saw the unpaid balance of delinquent CMBS sink to a 16-month low of $22.65 billion, down $211.0 million from the prior month, and down $446.0 million, or 1.9%, from the year-earlier period, according to Morningstar. The volume of newly delinquent loans remained below $1.50 billion for the second consecutive month, registering $1.49 billion, up marginally from $1.42 billion the prior month.

Morningstar says it believes the delinquency rate will hold below 3.0% after reaching an 18-month high of 3.19% in June. “There are fewer securitized commercial mortgages left that we expect will default at maturity, resolutions remain high and issuance has picked up,” according to Morningstar's report.

Meanwhile, the balance of the universe of securitized commercial mortgages rose to a seven-month high of $770.4 billion, Morningstar says. In its report on September delinquencies, Fitch noted that new issuance volume of $7.3 billion from eight Fitch-rated transactions in August significantly exceeded the portfolio runoff of $2.9 billion during September.

Fitch said it expects new issuance volume will continue to outpace portfolio runoff as an additional $8 billion of new issuance from seven transactions will be added to the figures for October. That compares to less than $7 billion of outstanding loan maturities within the Fitch-rated universe through the end of 2017.

On the legacy side, while pre-2010 securitizations now account for less than 7.0% of the overall CMBS universe, delinquencies from deals issued from 2005 through 2008 represent 89.1% of all delinquencies by balance, Morningstar says. Comparatively, says Morningstar, delinquencies from deals issued from 2012 through 2015 contribute 7.1% of all delinquencies and represent 0.2% of the CMBS universe.

Furthermore, the rate of CMBS in special servicing fell to its lowest level since 2009: down three bps to 3.37%, although the portion of post-crisis loans in special servicing rose 11.2% from August, according to Morningstar. Since the beginning of the year, specially serviced post-crisis loans have more than doubled to $3.42 billion, up from $1.53 billion as of January.

Compared to a year ago, hotel and retail are the only sectors in which CMBS late-pays have increased, Morningstar says. On a percentage basis, multifamily has fared best, with delinquencies improving by $97.1 million, or 5.4%, from $1.79 billion in September 2016.

By Dec. 31, an additional $4.39 billion of loans packaged in CMBS are due to mature. “We believe that the payoff rate, which stands at 72.1% for the year through September, will stay above 70% through year-end, as there are fewer CMBS loans left to pay off and we expect continued non-CMBS financing for loans with weaker metrics,” according to Morningstar's report. Moreover, Morningstar reported last week that the payoff rate has been higher than expected lately, coming in at north of 70% in 11 of the past 14 months.

New York

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CMBS Late-Pays Improve 3 Months in a Row

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