Two large loan modifications helped drive down the delinquency rate on U.S. commercial mortgage-backed securities (CMBS) delinquencies for a ninth straight month, according to the latest index results from Fitch Ratings.
CMBS late-pays declined 30 basis points (bps) in February to 7.61% from 7.91% a month earlier. In addition, the dollar balance of delinquent loans fell below the $30 billion mark for the first time since February 2010.
Fitch Ratings says the sharp drop was fueled by the impending resolution of two high-profile loans and their removal from Fitch Ratings' index: the $195.1 million Babcock & Brown FX 3 portfolio (CSMC 2006-C4) and the $190 million One Congress Street transaction (WBCMT 2007-C30), both of which are being modified. The Babcock & Brown FX 3 portfolio consists of 14 multifamily properties totaling 3,720 units located in five states, while One Congress Street is a 1.2 million square foot mixed-use building located in downtown Boston that fell on hard times when the property's anchor tenant, the U.S. Government Services Agency, vacated at its 2010 lease expiration.
The drop in the delinquency rate was also helped by the largest month for new CMBS issuance in over five years. Seven Fitch-rated transactions totaling $6.62 billion closed in February. This topped the previous post-recession high of $6.57 billion that closed in November of last year.
Within the commercial real estate sectors, industrial took the number one delinquency spot due to the addition of the $148.8 million StratReal Industrial Portfolio II (JPMCC 2007-LDP10) to the index. The portfolio consists of 10 industrial properties located in Tennessee, Ohio and California. The portfolio's woes began in 2010 and 2011 when several major tenants vacated. The loan is now considered in foreclosure based on the latest servicer comment, which indicates that the borrower has verbally agreed to a deed in lieu of foreclosure.
Fitch Ratings also expects further volatility in its index.
‘The continuing resolution of larger loans may result in further steep month-over-month declines in the delinquency rate,’ says Fitch Ratings. ‘Excluding the $2.75 billion Stuy Town loan, the index contains 33 loans over $100 million. Of those, roughly half are real estate owned (REO), with another 18% in the process of foreclosure. The remaining one-third are either 90-plus days delinquent or are considered nonperforming matured balloons.’