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TREPP: US CMBS Delinquency Rate Falls Once Again

For the third time in the last four months, the Trepp CMBS delinquency rate fell significantly. The rate dropped 17 basis points last month, bringing the delinquency rate for US commercial real estate loans in CMBS to 8.48% in July. This improvement comes on the heels of a 42-basis-point drop in June and a 47-basis-point plunge in April. Only a four-basis-point increase in May interrupted the recent gains in the delinquency picture. The Trepp delinquency rate is now 123 basis points lower than where it began the year. The July rate is also the lowest reading since the September 2010 rate of 8.45%.

A year ago, the Trepp CMBS delinquency rate reached an all-time high of 10.34%. Now at 8.48%, this meaningful decline can be largely attributed to a high level of CMBS loan resolution. This was the case in July, with loan resolutions totaling $2.05 billion—up sharply from $1.25 billion in June and $858 million in May. Removing these distressed loans from the delinquent asset bucket last month created 38 basis points of downward pressure on the delinquency number.

On the other hand, there were about $2.39 billion in newly delinquent loans in July, which measured almost twice the total posted in June. This put upward pressure of 44 basis points on the delinquency rate. Helping to offset these new delinquencies were $1.08 billion of loans that cured in July. These loans put 20 basis points of downward pressure on the delinquent loan reading.

With so much progress made over the past year, there was some concern last month that the enthusiasm for the CMBS market was about to end. In late June, CMBS investors were watching nervously as CMBS spreads widened considerably and Treasury yields shot upward. Over the last 30 days, however, much of that worry has subsided. Spread widening has reversed course (although spreads remain far wider than their best levels of a few months ago) and Treasury yields have leveled off.  A host of deals have been prepared to price in August, which indicates that the market has regained its footing after the late May and June volatility. This new issuance bodes well for continued improvement in the CMBS delinquency rate in the near future. As long as the new CMBS issuance market remains steady, refinancing older loans and selling both new and distressed properties should continue at a healthy pace. This activity should also promote lower delinquency rates looking forward.

The Numbers:
• The overall US CMBS delinquency rate decreased 17 basis points to 8.48%.
• The percentage of loans 30+ days delinquent or in foreclosure: July ’13: 8.48   June ’13: 8.65%     May ’13: 9.07%
• The percentage of loans seriously delinquent (60+ days delinquent, in foreclosure, REO, or non-performing balloons) is now 8.18%, down 19 basis points for the month.
• If defeased loans were taken out of the equation, the overall 30-day delinquency rate would be 8.80%– down 18 basis points from June.
• There are currently $46.2 billion in delinquent loans. (This number excludes loans that are past their balloon date but are current on their interest payments).
• There are $56.9 billion in loans with the special servicer. This represents about 2,960 loans.

For a historical perspective, delinquency numbers by property type, and delinquency status percentages, read the full version.