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Got Shale? What Could Declining Oil Prices Do to CMBS?

The price of oil dropped several more percentage points on Monday, falling below $50 for the first time since 2009. We do not pretend to be experts in Texas or Oklahoma geography, but we did take a crack at trying to put together a list of loans in certain geographies that could be affected by plummeting oil prices.

Our analysts started by creating a list of zip codes that fell within the shale drilling areas. (One such shale map is here). From there, we mapped the zip codes to CMBS loans. Our first list gave us almost 850 separate notes, but we tried to pare that down. We specifically pulled out loans that were in large cities including Houston, Fort Worth, San Antonio, Arlington, and Katy, Texas, as well s smaller nearby areas like Bedford, Bellaire, Colleyville, and Grapevine. We also pulled out “college towns” like Bloomington, Indiana; Norman, Oklahoma; and Tuscaloosa, Alabama. We also pulled out loans that were backed by multiple properties, one or more of which were located in shale regions. This dropped the list down to about 500 notes with a total balance of $3.9 billion.

Arguably, there are other areas close to Dallas or Houston that we could similarly have pulled out (places like The Woodlands, Sugar Land, Spring, and several others). If any of our readers have any thoughts on towns that we should have left in or pulled out, we welcome the additional expertise. As you will see, some of the loans are large shopping malls that may be of much less concern than, for example, a hotel or strip center far away from an urban area.

We put all the loans that met the criteria onto a list on ‘In the Spotlight’: Shale Exploration Area Loans. Again, this could change over the next few days.

Separately, we also looked for loans in which one of the tenants was a major shale oil producer, based on a list of the top 20 producers. We used only conduit deals for this search and eliminated loans that appeared to be backed by gas stations. That list is here: Shale Producers Office/Industrial Space. This list totals 28 notes and about $900 million in outstanding balance.

An article from the Houston Business Journal in mid-December quoted the Dallas Fed as saying that the drop in oil prices could cost Texas 125,000 jobs in 2015.

US CMBS Delinquency Rate Ends Year Down 168 Basis Points

Download the PDF report, complete with historical data, delinquency status, and the largest loans taking losses.

The Trepp CMBS Delinquency Rate continued to shrink in December, causing it to resemble the “after” shot in a dietary supplement ad. After falling below 6% and hitting its lowest level in five years in November, the delinquency rate fell five basis points in December. The delinquency rate for US commercial real estate loans in CMBS is now 5.75%, down 168 basis points from 7.43% in December 2013.

CMBS loans that were liquidated with losses totaled almost $700 million in December. Removing these previously distressed assets from the numerator of the delinquency calculation helped move the rate down by 13 basis points. Over $700 million in loans were cured last month, which helped push delinquencies lower by 14 basis points. Just under $3.3 billion in loans were newly defeased in December, which represented over 60 basis points of the total CMBS market. Almost $1 billion in loans became newly delinquent in December, which put 19 basis points of upward pressure on the rate.

Among the major property types, the lodging sector saw the biggest year-over-year improvement. The delinquency rate for hotel loans fell 314 basis points during 2014. The retail sector saw the smallest improvement among the property types, as it dropped 40 basis points over the course of the year. The delinquency rates for industrial, office, and multifamily loans improved by 291, 205, and 201 basis points, respectively.

The CMBS market heads into the new year with a lot of momentum. For most of 2014, issuance levels lagged behind most experts’ opinions. A surge in the second half of the year helped the market reach almost $100 billion in deals, leading many lenders to predict that issuance will crack that barrier in 2015. With the 10-year Treasury hovering in the low 2% range and CMBS spreads remaining fairly steady in recent months, the CMBS market should kick off 2015 in fine form.

The Numbers:
• The overall US CMBS delinquency rate dropped five basis points to 5.75%.
• The percentage of loans seriously delinquent (60+ days delinquent, in foreclosure, REO, or non-performing balloons) is now 5.63%, three basis points lower for the month.
• If defeased loans were taken out of the equation, the overall 30-day delinquency rate would be 6.05%—down seven basis points from November.
• There are currently $30.2 billion in delinquent loans, about $500 million lower than last month. This number excludes loans that are past their balloon date but are current on their interest payments.

Historical Perspective:
• One year ago, the US CMBS delinquency rate was 7.43%.
• Six months ago, the US CMBS delinquency rate was 6.05%.
• One year ago, the rate of loans seriously delinquent was 7.20%.
• Six months ago, the rate of loans seriously delinquent was 5.92%.

Property Type Analysis:
• The industrial delinquency rate inched up six basis points to 7.55%.
• The lodging delinquency rate fell another 20 basis points to 4.77%. Lodging remains the best performing major property type.
• The multifamily delinquency rate crept up two basis points to 8.85%. Apartment loans remain the worst performing among the major property types.
• The office delinquency rate shed 13 basis points to 6.08%.
• The delinquency rate for retail loans sank one basis point to 5.66%.
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