Wednesday, August 3, 2011

CMBS Loans Hit All-Time High Delinquency Rate

Trepp’s July delinquency report for CRE loans wrapped up in MBS reached an all-time high: 9.88%.

"Much of the positive momentum that had been surrounding the CMBS market recently has now all but vanished in the past few weeks. For the better part of the spring, the market was riding a wave of spread tightening, resulting in new issuance, greater velocity of troubled-loan resolution and falling delinquency levels. However, each of those positive reactions has taken a turn for the worse in the last two months.

In June, CMBS spreads widened noticeably. This trend continued for the better part of July, and in turn, CMBS issuers became tentative about new lending. This led some players in the industry to begin lowering their expectations for CMBS lending in the second half of 2011.

Next, the announcement was made that S&P was pulling its rating for a new issue underwritten by Goldman Sachs and Citibank late last week. This forced the new deal to be pulled from the market, introducing an entirely new level of risk to the new issue CMBS market. With the commercial real estate market already worried about how borrowers were going to find enough financing to handle the wave of loan maturities hitting the market over the next few years, this only added to current concerns.

Now we are presented with a monthly CMBS delinquency reading that surpasses the previous record. In July, the delinquency rate for U.S. commercial real estate loans in CMBS shot up 51 basis points to 9.88%. This is the highest delinquency rate in the history of the CMBS market. The spike comes after two consecutive drops in the rate for May and June, which was the first back-to-back monthly drop since the credit crisis began in 2008."

The Numbers:

  • Overall U.S.delinquency rate spikes to 9.88%, an increase of 51 basis points
  • Percentage of loans 30+ days delinquent or in foreclosure: July 11: 9.88% — June 11: 9.37% — May 11: 9.60%
  • If defeased loans were taken out of the equation, the overall delinquency rate would be 10.38%, up 53 basis points from June 2011
  • Percentage of loans seriously delinquent (60+ days delinquent, in foreclosure, REO or non-performing balloons) is at 9.14%, up 39 basis points from June 2011

Historical Perspective

  • One year ago, the overall U.S.delinquency rate was 8.71%
  • Six months ago, the overall U.S.delinquency rate was 9.39%
  • One year ago, the rate of seriously delinquent was 7.95%
  • Six months ago, the rate of seriously delinquent was 8.75%