The market for U.S. commercial real estate loans in commercial mortgage-backed securities (CMBS) is experiencing something of a seesaw ride, with delinquency rates ticking upwards last month while the volume of underperforming CMBS loans in special servicing registered a third-quarter drop.
The CMBS delinquency rate inched slightly higher in November, rising two basis points (bps) to 9.71%, according to new data from Trepp LLC. This tick upward came after three consecutive months of decline.
From July through October, the CMBS delinquency rate fell 65 bps from an all-time high of 10.34% in July to 9.69% in October. One of the main contributors to the rate moving up in November was an increase in newly delinquent loans – $3.7 billion of such loans, up from $2.6 billion in October.
Among the major property types, lodging loans saw their delinquency rate jump 100 bps in November. The only other major property type to see a rate increase was the office sector, while retail, multifamily and industrial loans all improved modestly.
‘The market cooled off somewhat in November,’ says Manus Clancy, senior managing director of Trepp. ‘After months of seeing spreads plummet and delinquency rates fall, both inched up in November. Despite the time-out, CMBS continues to be issued at a feverish rate – so the enthusiasm for the asset class remains high.’
Separately, new data from Fitch Ratings finds the volume of underperforming U.S. CMBS loans in special servicing in its sharpest quarterly decline. After peaking at $91.7 billion in 2010, CMBS loans in special servicing dropped nearly $6 billion to $74.8 billion at the end of the third quarter.
Fitch Ratings attributes this decline to the number of loans being transferred into special servicing, combined with a large number of loans either being liquidated or returning to performing. During the third quarter, the volume of assets per asset manager dropped significantly to 12 from 16, as the total number of assets in special servicing decreased. Furthermore, the number of loans transferring into special servicing saw its most significant drop since 2010, decreasing to $5.5 billion during the third quarter from the previous average of $11.8 billion per quarter.
Although Fitch Ratings notes that the backlog of underperforming CMBS loans is ‘still formidable,’ the company adds that servicers are ‘gradually seeing fewer loans to work out and increased refinancing opportunities, which bodes well for the next year.’
