CMBS Late Pays: Below 6% in All Sectors

NEW YORK CITY—Even as the volume of new issuance has fallen short of earlier estimates and concerns remain about other loan performance metrics, the CMBS delinquency rate keeps declining. Fitch Ratings says that late-pay rates for all the major property types have fallen below 6% for the first time since the depths of the recession, although delinquencies in the lodging sector ticked upward between May and June.

Overall, the June delinquency rate for Fitch-rated CMBS loans dipped 10 basis points to 4.87% from the previous month's figure. That marks 15 consecutive months of improvement, according to Fitch.

Employing a different yardstick, Trepp measured June's delinquency rate at 6.05%. It marks a 260-bp drop year over year and a 429-bp fall from the high watermark set in 2012, for 13 consecutive months of improvement.

In late June, “we saw the six-year anniversary of the beginning of the CMBS Ice Age—a stretch where there would be no CMBS issuance for 21 months,” says Manus Clancy, senior managing director at Trepp. “As we reach the halfway point of 2014, the thaw is nearly complete. New issue spreads continue to fall and legacy defaulted CMBS loans continue to be resolved at a steady pace.”

Amid this good news, however, Fitch notes that while the late-pay rate has continued to decline, the ratings agency is tracking a number of larger loan special servicing transfers, as borrowers request modifications prior to upcoming loan maturities. “Should modifications not be granted, some of these loans may become delinquent, which could reverse or slow the declining trend,” according to Fitch.

Resolutions in June were led by the note sale of the $112-million Senior Living Properties Portfolio loan, securitized as GMACC 1998-C1. The next largest was the original $42.5 million loan on the Glen Town Center (BACM 2006-2), which became REO in June of last year and was sold in late May for a 50% loss.

Fitch says the largest new delinquency last month was the $55-million RiverCenter I & II loan (BSCMSI 2007-TOP28), which was reported to have defaulted at its June 8 maturity. In all, resolutions of $827 million last month outpaced new additions to the index of $449 million. Fitch-rated new issuance volume of $5.1 billion during the month outpaced $4.8 billion in portfolio runoff, resulting in a slight increase in the index denominator.

By property type, industrial saw the largest decline last month at 65 bps, thanks to resolutions outpacing new delinquencies by a ratio of more than 2:1 and an increase in the denominator from the $655-million CSMC 2014-ICE transaction. However, the sector continues to have the highest delinquency rate at 5.78%.

Multifamily experienced a 27-bp decline to 5.65%, also due to a comparable resolution-to-new-delinquency ratio. Retail and office saw modest improvements of 16 and 9 bps, respectively, to 4.82% and 5.13%.

On the other hand, the hotel rate actually worsened by 18 bps last month, due largely to the $54.4-million Radisson Ambassador Plaza Hotel & Casino loan (CGCMT 2006-FL2) falling behind on payments. This was accompanied by no hotel loan resolutions in June.?However, hotel's delinquency rate is still below 6% at 5.3%, although it has moved from fourth highest delinquency rate in May to third highest last month.

This may all represent general improvement. But for some historical perspective, a recent blog posting on the National Association of Realtors website cited a 2002 report from what was then called the Commercial Mortgage Securities Association, now the CRE Finance Council. In those days, the delinquency rate was closer to 1%.