NEW YORK CITY—Continuing the momentum identified by CBRE in its second-quarter Lending Momentum Index earlier this month, CMBS issuance in July reached $9.4 billion, Fitch Ratings said Friday. The strong new issuance volume went a long way toward the biggest monthly decline in delinquencies for Fitch-rated CMBS since January 2016, when the Peter Cooper Village/Stuyvesant Town loan was resolved.
That being said, pre-2009 deals are more likely by far to be in arrears than so-called CMBS 2.0 transactions. While July’s 12-basis point decline brought the overall CMBS delinquency rate down to 3.60%, for CMBS 1.0 the late-pay rate is now 35.33%, up 369 bps from the previous month. Delinquencies on legacy securitizations have increased in each of the past 18 months.
This doesn’t mean the CMBS 2.0 universe is trouble-free. July also saw a two-bp uptick in delinquencies among newer CMBS issues, to 0.21%. Yet $12 billion in the $12.68 billion in Fitch-rated CMBS that is currently delinquent is comprised of 1.0 deals, and 777 of the 868 Fitch-rated loans in delinquency are legacy issues. At July 31, the Fitch-rated universe of $319 billion in 2.0 deals far exceeded the $39 billion in legacy CMBS.
The size of July’s new issuance volume contributed to a higher overall index denominator, exceeding portfolio runoff of $5.9 billion by a wide margin. Meanwhile, resolutions of $844 million exceeded $544 million in new delinquencies.
July’s largest new delinquency occurred in the retail sector, although in common with most property types, retail saw its late-pay rate decline in July. Partly that’s because July’s largest resolution was also on a retail loan, the $110-million Westfield Shoppingtown Independence loan that by itself accounted for more than 25% of the $427 million in retail loans that were resolved during the month.
Although delinquencies on CMBS backed by retail properties—still the worst-performing sector—declined just five bps to 6.18% during July, regional malls saw a more substantial 26-bp drop to 4.83%. Regional malls account for approximately 33% of the overall Fitch-rated retail universe, and 26% of total overall retail delinquencies.
Industrial delinquencies saw the largest decline of all property types in July, falling 90 bps to 4.27%. This was due to $116 million in resolutions compared to just $8 million in new delinquencies.
The 41-bp decline in the office delinquency rate, to 5.82%, was due to $176 million in resolutions exceeding the sector’s $60 million in new delinquencies. Moreover, there was also a significant increase in the overall office universe, up $3.2 billion month-over-month across 10 new transactions that Fitch had rated in June.
Hotel delinquencies saw a modest six-bp decline to 2.78%, while multifamily’s late-pay rate ticked upward by two bps to 0.69%. Mixed-use securitizations were unchanged with a 4.20% delinquency rate, and “other” property types saw a 23-bp drop in delinquencies to 0.83%.
CBRE’s report found that conduit CMBS accounted for 36% of non-agency originations during Q2, compared to a 16% share in the year-ago period. Year to date, CMBS issuance reached $38.8 billion as of June 30, well above the $30.7-billion tally this lending class had reached at the end of Q2 2016. With July’s new additions, the tally of new issues is now approaching the $50-billion mark, although many analysts expect the year to end with essentially the same total as was issued during ’16.