CMBS Delinquency Rate Drops

Michael Tucker mtucker@mba.org

September 27, 2018


Legacy debt resolutions and brisk new loan securitizations sharply lowered the commercial mortgage-backed securities delinquency rate in August, said Trepp, New York.

The overall delinquency rate for commercial real estate loans in CMBS fell 17 basis points to 3.64 percent, Trepp said. Delinquency rates for all major property types fell last month.

"Thanks to continued delinquency rate improvements and a solid pace of new issuance, the CMBS market in 2018 remains healthy and volatility-free for issuers and investors," Trepp Senior Managing Director Manus Clancy said.

Wells Fargo Securities, Charlotte, N.C., noted tighter spreads on what it called "healthy" new CMBS issuance. "Hungry for paper, the CMBS market is happily digesting a full plate of CMBS new issuance offerings," the firm's CMBS Weekly report said. "Issuance is likely to continue to be heavy through October." But the market could see smaller conduit deals in the fourth quarter, Wells Fargo Securities said. 

Fitch Ratings, New York, updated its view on each of the four main CMBS property types. It said the multifamily market remains strong and demographics continue to favor it, but the sector is approaching its peak. Apartment effective rent growth reached 5.8 percent in 2015 and has slowed considerably since then to 3.9 percent in both 2016 and 2017.

In addition, multifamily subsector student housing, which has seen a record amount of new supply enter the market in recent years, "continues to be a concern," Fitch said.

The office sector might also be peaking, Fitch said. The U.S. office vacancy rate has increased by 20 basis points over the last year and the firm said it continues to watch for the impact of deliveries of large amounts of new supply expected this year and next.

Fitch said the hotel sector has already peaked, noting revenue per available room was up 3.3 percent for the 12 months ending in June compared a year before and hotel occupancy was up 1.0 percent over the same period. "Fitch expects corporate transient demand--the highest-rated and most profitable business for many hotels--to trail the industry average growth rate during 2018," the report said.

Tenant bankruptcies and store closings continue to take a toll on the retail sector, Fitch noted. It placed the sector in the "declining" post-peak phase.

The national vacancy for neighborhood and community shopping centers worsened to 10.2 percent in the second quarter after stagnating at 10 percent for the past four quarters, Fitch said. Retail vacancies fell to 9.8 percent in 2016 but have increased or stagnated ever since.

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