Delinquencies Pile Up More Slowly in June

NEW YORK CITY-Fitch Ratings and Trepp, in separate reports, each say June’s 17-basis point increase in CMBS delinquencies was the smallest since July 2009. However, Trepp points out the delinquency rate is still the highest in CMBS history, while Fitch doesn’t see the month’s slowdown as a precedent-setter.

'While delinquencies slowed for the month, this trend is not expected to continue,” Mary MacNeill, managing director at Fitch, in a release. “The number of distressed properties continues to grow, and if borrowers are unable to access capital for leasing costs or are unable to restructure their loans to a leverage level commensurate with sustainable property values, they may stop subsidizing debt service payments.”

In its monthly delinquency commentary, Trepp says the rate of increase in delinquencies averaged 39 bps per month for the nine months prior to June. Before June, the smallest increase since September 2009 was February’s 23-bps gain.

Trepp puts the percentage of CMBS loans 30 or more days delinquent, in foreclosure or REO at 8.59% as of June 30; Fitch measures it as 8.14%. If defeased loans were added to the total, says Trepp, the tally of delinquent CMBS would exceed 9%.

And while the rate of new delinquency took a breather during June, Fitch says loans continued to transfer to special servicing at “an elevated rate,” adding $4.2 billion of performing specially serviced loans during the month. “In total, $23 billion of loans in special servicing remain less than 60 days delinquent but face an increased risk of default,” according to Fitch.

Conversely, June also marked the fifth consecutive month of more than $1 billion in loan resolutions, and Fitch says the $1.5 billion of loans leaving the index in June helped to offset the $2 billion of new delinquencies. June also saw a smaller average balance for newly delinquent loans: $10.1 million, compared with the $13.1-million average in Fitch’s CMBS delinquency index. The month also brought no newly delinquent loans with a balance of more than $100 million.

Among the delinquency rates in the major sectors, only lodging remained basically flat from May to June, posting an increase of only one basis point to reach 18.63%. However, the sector has the highest delinquency rate of any, and Fitch says that hotel delinquencies could break the 20% barrier during July if borrowers fall farther behind on most of the $1.3 billion in loans that are now 30 days past due.

The largest monthly increase was the 41-bps rise in industrial delinquency from 5.07% to 5.48%. Office rose 25 bps to 4.84%, multifamily delinquency added 17 bps for a new total of 13.82% and retail gained 16 bps to reach 6.19%.

In what may be a harbinger of things to come, Fitch on Thursday rated newly issued CMBS: specifically, the two classes of bonds that back the $1.3-billion refinancing of the Durst Organization’s office tower at 1 Bryant Park in Manhattan. The ratings agency assigned a stable outlook to $650 million of OBP Depositor LLC Trust 2010-OBP and a comparable amount of New York Liberty Development Corp. second priority liberty revenue refunding bonds, series 2010.