NEW YORK CITY—It wasn’t a dramatic decrease, but coming after five consecutive months of upward movement in the CMBS delinquency rate, it was an encouraging one. Trepp LLC said Monday that the late-pay rate for securitized commercial mortgages declined eight basis points in August to 4.68%, beginning to reverse a 61-bp uptick since a cyclical low of 4.15% was reached in February.
“The pause in the upward momentum of the delinquency rate is a positive sign for investors,” says Manus Clancy, senior managing director at Trepp. “With about 18 months to go until the loans representing the wall of maturities are fully digested, we remain cautiously optimistic that losses on these 2006 and 2007 notes will come in at the low end of expectations.”
August’s reversal of course for CMBS delinquencies, though, coincided with an especially slow month for new securitizations. Although the month was marked by the issue of the first CMBS transaction in compliance with the new risk-retention requirement, WFCM 2016-BNK1, no new deals came to market after August 12. That marked a letdown following July, which represented one of the best months for CMBS in some time “as the post-Brexit rally for CMBS cash paper had long legs.”
Accortdingly, Trepp says, “there were no benchmarks to measure where a new deal would price today. In addition and as expected, daily trading volume was extremely low for the last two weeks.” That being said, “We won’t have to wait long, though, as September looks to be a busy one for new deals.”
Whether the month will also see a continuation of the downward trend in delinquencies remains to be seen. Meanwhile, the August delinquency rate is 77 bps lower than the year-ago level and 49 basis points lower since the beginning of the year. The all-time high of 10.34% was reached in July 2012.
In August, CMBS loans that were previously delinquent but paid off with a loss or at par totaled over $1 billion, according to Trepp. Over $650 million in loans were cured last month, representing “a welcome increase” from the $200 million cured in July and pushing delinquencies down by 13 bps. Conversely, $1.25 billion in CMBS loans became newly delinquent in August, putting 26 bps of upward pressure on the delinquency rate.
The percentage of seriously delinquent loans—defined as 60-plus days delinquent, in foreclosure, REO or non-performing balloons—decreased along with the overall delinquency rate. The rate of seriously delinquent loans inched up nine bps for the month to 4.58%. If defeased loans were removed from Trepp’s delinquency calculation, the 30-day delinquency rate would be 4.91%.
By property type, the biggest improvement occurred in office, where CMBS late-pays fell 20 bps to 6.03%. However, multifamily remains the best performing property type; its August delinquency rate was 2.38%, down 13 bps from July.
Industrial’s six-bp decrease in delinquencies brought the late-pay rate for this sector down to 5.57%. Lodging delinquencies, although the second lowest after multifamily’s, nonetheless ticked upward by three bps to 3.15%. Retail incurred the largest delinquency increase of the month, rising five bps to finish August at 5.81%.
For an in-depth exploration of the outlook for maturing CMBS as securitized commercial mortgages from the peak of the previous cycle come due, be sure to attend the “CMBS Report Card: Is The Upturn Ending? Plus! A Closer Look at Today’s Special Service Providers” panel discussion at RealShare National Investment & Finance, scheduled for Oct. 5 and 6 at the Roosevelt Hotel in New York City.