CMBS delinquency rate drops sharply in December to 3.11%

The Trepp CMBS Delinquency Rate concluded 2018 on a positive note as the reading dropped sharply in December and reached another post-crisis low. The rate fell 22 basis points from 3.33 percent in November to 3.11 percent in December.

The delinquency reading dropped in 10 of the 12 months of 2018. In total, the rate shed 178 basis points during 2018.

The delinquency rate started to fall after June 2017 when the reading clocked in at 5.75 percent. Since then, the rate has fallen in 16 of the last 18 months. The all-time high of 10.34 percent was registered in July 2012.

In addition, the percentage of 1.0 debt that is seriously delinquent is now 45.92 percent, which is down 46 basis points from November.

Breaking it down by property type, the industrial delinquency rate fell 61 basis points to 2.39 percent and compressed 328 basis points in 2018, representing the largest year-over-year improvement among major property types. The lodging delinquency reading declined 42 basis points to 1.51 percent and remains the best-performing major property type. The sector’s delinquency rate dropped 231 basis points in 2018. Next, the multifamily delinquency rate improved six basis points to 1.98 percent. The multifamily reading dropped 38 basis points year over year. The office delinquency reading fell 38 basis points to 3.45 percent. Year over year, the office delinquency rate declined 295 basis points. Last, the retail delinquency rate shed nine basis points to 5.21 percent and remains the worst-performing major property type, but its delinquency rate did improve 92 basis points in 2018.

Looking ahead to 2019, Trepp expects the delinquency rate to continue to compress during, at least, the first half of the year. By then, most of the legacy loans that are currently distressed should be resolved and removed from the calculation. After that, additional gains may be harder to attain.