CMBS Delinquency Rate drops 29 bps in December, lowest in 15 months

The Trepp CMBS Delinquency Rate fell sharply in December and the final reading of 2017 was the lowest reading since September 2016. The delinquency rate for U.S. commercial real estate loans in CMBS is now 4.89 percent, a decrease of 29 basis point from the November level and 34 basis points lower than the 2016 year-end level (5.23 percent).

December also marked the sixth straight month in which the reading has dropped and is the largest monthly dip since January 2016.

After hitting a post-crisis low in February 2016, the reading climbed steadily for more than a year as loans from the “bubble” years of 2006 and 2007 reached their maturity dates and were not paid off. The delinquency rate moved up 13 times in the 16 months between March 2016 and June 2017.

However, the delinquency level has receded since June as bubble year loans have passed their maturity date and been resolved. In other words, fewer loans are defaulting, and those that defaulted in recent years are being resolved away (often with losses).

More than $800 million in loans became newly delinquent in December, which put 20 basis points of upward pressure on the delinquency rate. About $835 million in loans were cured last month, which reduced the delinquency rate by 20 basis points. Roughly $1.16 billion in previously delinquent CMBS loans were resolved with a loss or at par in December. Those resolutions shaved 28 basis points off the December reading.

Breaking it down by property types:

• The industrial delinquency rate fell 43 basis points to 5.67 percent. Year-over-year, the industrial reading was up five basis points.
• The delinquency reading for hotel loans increased 19 basis points to 3.82 percent.
• The lodging rate moved up 25 basis points year-over-year, the worst move of any major property type.
• The multifamily delinquency reading dropped 35 basis points to 2.36 percent. Apartment loans remain the best performing major property type. Year-over-year, the multifamily rate fell 36 basis points.
• The office delinquency rate decreased by 10 basis points to 6.40 percent. Year-over-year, the office rate moved down 73 basis points, which represented the greatest improvement of any major property type.
• The retail delinquency rate plunged 66 basis points to 6.13 percent. The retail reading finished 24 basis points lower year-over-year.

Further reductions in the U.S. delinquency rate could be in the cards for 2018, according to Trepp.