SD Late-Pay List Sports Several Offices

SAN DIEGO—The majority of CRE properties on the 90-day-plus delinquency list are from the office sector, Sean Barrie, research analyst for New York-based Trepp LLC, tells GlobeSt.com exclusively. This is unusual for most markets historically, since the multifamily sector typically holds the most long-term delinquencies, but could be the result of downsizings in the corporate world, he says. Following the firm's release of its February commercial real estate delinquency report for the month of February, we spoke with Barrie about what the report means and how the San Diego CRE market is faring in this realm.

GlobeSt.com: What do you make f the current delinquency data on San Diego CRE?

Barrie: The DLQ rate has had a bit of fluctuation going back to October 2014 when it went up a bit, but it is now back down to a reasonable  number. The fact that it's been below three for the past year is very good. The San Diego market is performing well based on the commercial data we have.

GlobeSt.com: What are the chief causes of delinquency in this market? Are these causes worsening or improving?

Barrie: It really depends because each loan is different. You could have a $300-million apartment that goes into default, and it could be a legal issue or because the asset is underperforming. One thing that's interesting is that you see the majority of 90-day-plus delinquent loans in San Diego are for office buildings—there were nine of them in February. We are also seeing REO, which means lenders are taking loans back after a property goes to sale, either to get a better price or a better workout strategy for the loan. What we are monitoring across the board is the maturity date for these loans. There were a lot of 10-year loans that are maturing between 2015 and 2017, and that's a catastrophic number of loans eligible for refinancing. This is something every market should be keeping an eye on, too.

GlobeSt.com: Which CRE property sectors tend to see the highest levels of delinquency in this market?

Barrie: Across the board, the multifamily property sector is still the worst-performing in terms of delinquency. You don't see many multifamily properties on the delinquency list for San Diego in February, but for office buildings, you might see some downsizing. A lot of firms may feel their physical tenancy is too great or there's too much overhead, so they might consolidate or leave a property or encourage work-at-home deals for employees. We're seeing a lot of tenant departures in Houston and DC, but not in San Diego for office buildings. For multifamily, it's hard to say. The main thing we see is that there was a lot of overbuilding in years prior, and we're starting to see some repercussions of that.