CMBS Delinquency Rate Increases for First Time Since Mid-2017

Michael Tucker mtucker@mba.org

April 12, 2018


The commercial mortgage-backed securities delinquency rate posted a rare increase in March, but it was modest, said Trepp Senior Managing Director Manus Clancy.

March marked the first time the rate has ticked up since June 2017, Trepp said.

The overall delinquency rate for U.S. commercial real estate loans in CMBS rose four basis points in March to 4.55 percent, Trepp reported. The ratings firm also breaks down delinquency rates for pre-financial crisis "CMBS 1.0" loans and the rate for post-crisis "CMBS 2.0+" loans. The post-crisis loan delinquency rate was 0.55 percent in March, while the delinquency rate for loans originated before 2008 was 47.84 percent.

Delinquency readings for three of the five major property types fell in March, Clancy said. The industrial sector saw the largest decrease, falling 23 basis points to 5.31 percent. The retail delinquency rate fell 17 basis points month-over-month and the multifamily sector's delinquency rate improved by one basis point. The office sector incurred March's largest increase--34 basis points--and the hotel sector's delinquency rate increased 12 basis points.

But several metrics including loan-to-value ratios and debt service coverage deteriorated "modestly" quarter-over-quarter, noted S&P Global Ratings, New York. "Interest-only concentrations were generally stable, but remain high," S&P's U.S. Conduit Update said. Loans with additional debt climbed to 25 percent in the first quarter from last year's 20 percent average.

S&P raised 19 and lowered 14 ratings during the first quarter.

CMBS issuance started the year strong and will likely remain "robust" through the second quarter, predicted Morningstar Credit Ratings, New York.

"New issuance volume remains healthy and delinquency rates low, but troubled retail tenants remain prevalent," the Morningstar Second Quarter Market Outlook said. "The continuing risk from bankrupt or struggling retailers looms over the existing CMBS universe, although we caution that the effects of bankruptcies and store closings often take considerable time to materialize."

DebtX, Boston, said prices of commercial real estate loans underlying CMBS held steady in February, the most recent data available. The estimated price of whole loans securing the CMBS universe remained at 96.5 percent at the end of February, reflecting no change from January. Prices were 98.2 percent in February 2017. 

"Loan prices in the CMBS universe were flat in February," said DebtX Managing Director Will Mercer. "We can attribute this to an offset between the increase in the price of U.S. Treasuries and a tightening of credit spreads."

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