Research - JUNE 30, 2017

CMBS delinquency rate jumps 28 bps in June

by Jody Barhanovich

The U.S. CMBS delinquency rate increased its largest amount in more than five years to 5.75 percent in June, according to Trepp. It is an increase of 28 basis points from May.

After hitting a post-crisis low in February 2016, the reading has consistently climbed over the past year as loans from 2006 and 2007 have reached their maturity dates and have not been paid off via refinancing. However, the last time the rate increased this much was in March 2012. The rate has moved up in 13 of the past 16 months.

The June rate is now 115 basis points higher than the year-ago level, and 52 basis points higher year-to-date. The reading hit a multi-year low of 4.15 percent in February 2016. The all-time high was 10.34 percent in July 2012.

Delinquency readings for all five major property types increased in June. The industrial delinquency rate moved up 20 basis points to 7.57 percent and lodging jumped 11 basis points to 3.53 percent. The office delinquency rate increased 21 basis points to 7.46 percent, while retail rose 15 basis points to 6.65 percent. The multifamily delinquency rate spiked 110 basis points to 3.92 percent; however, it is no longer the best-performing major property type after two large portfolio loans failed to pay off in June. Hotel loans are now the best-performing major property type.

About $2.4 billion in loans became newly delinquent in June, which put 58 basis points of upward pressure on the delinquency rate. About two-thirds of that $2.4 billion came from loans that reached their balloon date and did not pay off. A reduction in the denominator also helped push the delinquency rate higher, as more than $10 billion in performing loans paid off. If defeased loans were taken out of the equation, the overall 30-day delinquency rate would be 5.92 percent, up 31 basis points from May.

To be sure, the incline in the delinquency rate during this wall of maturities window has only been a fraction of what many expected a few years ago. At that time, worries were plenty that many 2007 vintage loans would fail to pay off when they reached their maturity dates. The 28 basis point jump is also well below the increases seen throughout 2010, when the delinquency rate would regularly climb by 40 basis points or more each month.

Trepp predicts that the rate should continue to inch higher over the next few months as pre-crisis loans reach their balloon dates.

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