CMBS Delinquencies Stabilize in the Last Three Months

CMBS delinquencies have stabilized over the last three months. The percentage of CMBS loans that are 121 days or more delinquent has held at 2% for the past three months, according to research from Moody’s Analytics.

However, loan delinquencies vary widely between asset classes. Multifamily, industrial and even office loans have a 121-plus day delinquency rate below .5%, while the 121-plus day delinquency rate for retail properties is 5.7%, and the hotel delinquency rate is at 9.5%. Industrial is .09%, followed by multifamily, at .27%, and office at .5%.

It is worth noting that the majority of multifamily and industrial loans in the 121-day delinquency bucket entered delinquency prior to March 2020. About 50% of multifamily properties and 75% of industrial properties in this category did not fall into delinquency due to the pandemic. In the retail and lodging sector, the opposite is true. More than 90% of retail properties and 93% of hotel properties fell into delinquency during the pandemic. According to Moody’s, this illustrates the severe impact that the pandemic has had on the retail and lodging sectors.

This has been the trend through the pandemic. A report from Trepp also shows the highest delinquency rates among retail and lodging properties. According Trepp, overall 30-plus day delinquency rates hit a near all-time high of 10.3% by June 2020. Lodging and retail delinquencies moved up to 24.3% and 18.1%, respectively; the highest on record for the CMBS industry.

NYC has the highest rate of CMBS retail loan delinquencies. According to a new report from Trepp x Compstak, delinquency and special servicing rates for retail CMBS loans in Manhattan were at an all-time high of 16.68% in August, and special servicing rates increased to 17.55%.

Despite the high concentration of retail and lodging loan delinquencies, there have been few liquidations in this market. This could signal that servicers have limited alternatives in these asset classes due to low sales. In other words, there isn’t an opportunity for a different operator or tenant to steer the asset in a different direction. With vaccine distribution, however, retail and lodging are nearing a recovery. Liquidation of these loans could still be an option in a more favorable market, according to the report. Low liquidation levels will mean that realized losses will be muted until the recovery.

On the other hand, delinquent multifamily and industrial loans are seeing a higher percentage of liquidation. The market fundamentals for these assets are much more stable than in retail and hotels, and servicers have an opportunity to recoup losses.