CMBS Liquidations Drop But Late-Pays Improve

NEW YORK CITY—Delinquencies on CMBS continue to improve steadily, Trepp LLC said Tuesday, citing February's decrease in the rate of late-pays. The delinquency rate declined eight basis points month-over-month and 120 bps year-over-year to 5.58%, marking the fourth consecutive month of improvement and the 20th monthly improvement over the past two years.

The February bottom-line figure reflects $550 million in CMBS loans that paid off either at par or with a loss, moving the rate down by 10 bps; a 14-bps improvement due to $700 million in loans that were cured last month; and $1.5 billion in loans that became newly delinquent in January, which put 22 bps of upward pressure on the delinquency rate. However, simultaneously the Trepp CMBS universe grew by about $4.5 billion as a result of adding newly seasoned CMBS 3.0 deals, thus alleviating the upward pressure.

The $550-million liquidation rate last month was less than half of January's tally of $1.2 billion. “February's near-record low liquidation volume established somewhat of a floor on the delinquency rate, but new issuance and a good amount of cured loans helped push the rate down yet again,' says Joe McBride, research associate at Trepp.

That being said, loans backed by hotel properties, which had represented the best-performing sector since last July, reversed course with an 11-bps increase in delinquencies. Industrial CMBS saw an even larger increase, rising 19 bps to 7.39%. Retail delinquencies saw the largest decrease in February, with late-pays declining 22 bps to 5.38%. Multifamily loans remain the worst performing property type, despite a 16-bp improvement to 8.65% in February. Office improved by four bps last month to 6.14%.

With regard to new issuance, Trepp says the market maintained its strong start to the year last month with regard to both volume and spread levels. New-issue pricing levels at February's end were close to the best levels of the year. “A steady stream of maturing loans will continue to bolster new origination and issuance through the rest of 2015,” says McBride.