According to two new reports from the Mortgage Bankers Association (MBA), the delinquency rates of mortgages backed by commercial and multifamily properties reveal the various impacts the COVID-19 pandemic has had on different types of commercial real estate
The findings come from MBA’s new Commercial Real Estate Finance (CREF) Loan Performance Survey for August, and the latest quarterly Commercial/Multifamily Delinquency Report for the second quarter of 2020.
“The onset of the COVID-19 pandemic had a dramatic and immediate impact on lodging and retail properties, which flowed through to the mortgages backed by those properties and led to a spike in delinquency rates in April and May,” says Jamie Woodwell, MBA’s Vice President of Commercial Real Estate Research.
“While delinquency rates for both hotel and retail properties have since stabilized – and even declined slightly in July and August for hotel-backed loans – they still remain elevated. Overall, the vast majority of the balance of loans backed by other major property types continues to perform well,” Woodwell says.
In August, there was relatively little change in overall commercial/multifamily delinquency rates, as well as continued declines in borrower inquiries and requests, with a comparatively high volume of executed actions.
Hotel and retail properties continue to see the greatest stress. The delinquency rate for lodging properties fell for the second month in a row, while the delinquency rate for retail properties rose to a new series high.
In general, most commercial and multifamily mortgages are still performing well: 93.6% of commercial/multifamily mortgage balances were current as of August 20, down slightly from 93.8% in July and 93.7% in June.
Lodging and retail loans continue to show the greatest impacts from the COVID-19 pandemic, with delinquency rates falling in August for lodging property loans and rising for retail. The share of lodging property loan balances that were non-current fell to 23.4% in August (from 26.2% in July and 27.3% in June). For retail property loans, delinquencies rose to 15.0% in August (from 13.9% in July and 14.7% in June).
Delinquencies of mortgages backed by most other major property types remained low: 98.3% of the balance of apartment loans were current (up from 98.1% last month), as were 97.8% of office loan balances (compared to 97.5% last month). The share of industrial loans that were current fell to 96.7% in August from 98.3% in July.
Driven by the concentration of lodging and retail properties, commercial mortgage-backed securities (CMBS) had seen the greatest increases in delinquencies in previous months. After a decline in July, CMBS delinquencies rose again – hitting 12.6% in August, from 12.0% in July and 12.9% in June.
Delinquencies for most other capital sources remained relatively low and stable. In August, 97.5% of FHA loan balances were current (compared to 97.5% a month earlier), as were 97.7% of life company balances (compared to 97.4% a month earlier) and 98.7% of GSE multifamily loan balances (flat from a month earlier).
Among borrowers, COVID19-related inquiries and requests fell during August, and executed actions held relatively steady. Borrowers inquired about relief related to 0.7% of the balance of commercial and multifamily mortgages in August, down significantly from 0.9% in July, 1.6% in June, 6.0% in May, and 12.8% in April. Formal requests for payment or other changes were made on 0.4% of loan balances, down from 0.7% in July, 1.3% in June, 4.1% in May and 7.0% in April.
Servicers executed modifications, forbearance or other actions on 1.4% of the aggregate loan balances, compared to 1.6% in July, 1.3% in June, 1.9% in May and 1.1% in April.
Given the larger share of retail and hotel loans than in other capital sources, the CMBS market has seen far more inquiries and requests and has extended more executed actions as a percent of outstanding balance than other capital sources.
Forbearance is in effect on 15.8% of hotel loan balances outstanding and 7.7% of retail loan balances outstanding.
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