Looking for a bit of good news in CRE financing and loans? According to Trepp, there's something to be found in CMBS.
The Trepp CMBS Delinquency rate fell modestly again in December 2023, it reported, by seven basis points to 4.51%. And, maybe more surprising, in the office property type, the delinquency rate dropped 26 basis points to 5.82%. "If we included loans that are beyond their maturity date but current on interest, the delinquency rate would be 5.49%, down nine basis points from November," the firm said.
The percentage of loans that are 30-days delinquent or lower was 0.23%, or a nine basis-point fall from November. For 90-day delinquency, the rate was 0.49%.
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However, it wasn't all good news. Overall U.S. CMBS delinquency was up year over year by 147 basis points. "The percentage of loans that are seriously delinquent (60+ days delinquent, in foreclosure, REO, or non-performing balloons) is now 4.28%, up two basis points for the month," they wrote. Look back six months and the delinquency rate was 3.90%. A full year ago and the U.S. delinquency rate was 3.04%.
The percentage of CMBS 2.0+ loans in that seriously delinquent category is 4.08%, three basis points up from the previous month.
Looking at delinquency rates by property types, the one with the highest December percentage, 6.47%, is retail. However, the year before it was at 6.97%, so it actually improved. Compare that to office: a year ago December, 1.58%, but in December 2023, 5.82%. That is down from the 6.08% of November. Next highest is lodging, going from 4.40% 12 months back and now 5.40%. Multifamily, currently at 2.62%, was 2.17% 12 months back. Industrial has the current lowest delinquency rate at 0.57%, but that is 15 basis points higher than a year back, when it was 0.42%.
All in all, it's good to any improvement. But things are still likely to become more difficult. More properties are coming up to maturity without necessarily having hedging or surplus capital to enable a smooth refinancing. Although many in the industry are waiting for the Federal Reserve to cut its benchmark rate, that may be optimistic. Money markets, for one, are acting in ways that assume interest rates will remain higher for years. That will put more pressure onto CRE markets and the chances of seeing decreased chances of easier financing. Increased delinquencies seem likely.
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