Trepp: CMBS Late-Pays Continue Falling

NEW YORK CITY-If the US unemployment rate had declined as rapidly as the CMBS delinquency rate over the past year, the domestic economy would be in fine shape. As it is, Trepp reported Tuesday that the late-pay rate for CMBS has declined 268 basis points since reaching an all-time high in the summer of 2012, with November marking the sixth consecutive month of improvement.

That's roughly the same rate of decline as the national unemployment rate has seen since its peak in 2009, but in about one-third the time. The overall CMBS delinquency rate is now 7.66%, down 32 bps from October, with loans delinquent for 60 days or more down 39 bps from the previous month to 7.3%.

“Despite the gains November posted with respect to delinquencies, the market was quiet, too quiet,” says Manus Clancy, senior managing director at Trepp. “Light trading volume and minimal spread moves defined the market.” He adds that was “a disappointing month” for anyone who profits from volatility.

During the month, a variety of stressors exerted upward and downward pressure on the delinquency rate. Nearly $1.2 billion in previously delinquent loans were resolved with losses. “By removing these delinquent loans from our numerator, the rate saw 22 bps of improvement,” according to Trepp. Another $2.2 billion of loans that cured during November improved matters by 40 bps, while new delinquencies totaled $2 billion for the month, which put 38 bps of upward pressure on the late-pay rate.

Still ahead are the sales of more than $3 billion of distressed assets and additional note sales at the hands of special servicer CWCapital. Since preliminary bids for the assets were due in mid-November, Trepp is assuming that some of these will close in time to hit the December remittance cycle.

“Removing over $3 billion of non-performing assets from the delinquent loan category would result in a 50-basis-point decrease in the rate, so a delinquency rate that threatens the 7% level may not be out of the question,” according to Trepp's monthly report. “Regardless of whether these sales hit in December or January, the CMBS delinquency rate should continue to improve in the near-term.”

As it stands, Trepp says there are currently $41.3 billion in delinquent loans, excluding loans that are past their balloon date but are current on their interest payments. There are $49.6 billion in loans in special servicing, a tally of just over 2,800 loans.