Delinquencies for office and retail loans have hit their highest-ever levels while overall U.S. commercial mortgage-backed securities (CMBS) delinquencies fell for the sixth straight month, according to the latest index results from Fitch Ratings.
CMBS late-pays declined five basis points (bps) in January to 8.32% from 8.37% a month earlier. The improvement was driven by multifamily loans, which saw a 165-bp plunge in their rate month-over-month to 12.77%. The delinquency rates for office and retail rose to all-time highs of 7.30% and 7.21%, respectively.
January marked the first time post-recession that the office delinquency rate surpassed that of retail. Office is the only major property type that Fitch Ratings has a negative outlook on for 2012. Office delinquencies are expected to continue rising as leases made at the height of the real estate boom roll to market, impacting income available to cover debt service.
New delinquencies were led by five-year, interest-only loans from the 2007 vintage that failed to pay off at maturity and have subsequently stopped paying interest. Notably, no new loans over $100 million were added to the index in January. In part, this was due to Fitch Ratings' excluding from the index several large loans (over $500 million in total) that were reported as nonperforming matured balloons for the first time in January, but which remained current on interest despite not satisfying their scheduled balloon payments.
The downturn in office and retail performance comes as multifamily and hotel loans have shown the best performance rebound over the past 24 months, as highlighted in last week's newsletter, a trend Fitch Ratings expects to continue. In fact, the multifamily delinquency rate has fallen 4.63 percentage points from one year ago, to 12.77% from 17.4%.