'Quiet July' for CMBS Delinquencies

Tucker, Michael mtucker@mba.org

August 16, 2016


The commercial mortgage-backed securities delinquency rate remained steady last month, reported Fitch Ratings, New York, and Morningstar, Chicago.

Fitch Managing Director Mary MacNeill said CMBS loan delinquencies increased just two basis points in July to 3.20 percent. Portfolio runoff of $7.6 easily billion exceeded $4.1 billion in new issuance volume, causing the overall index denominator to drop, Fitch said.

"There was no significant activity in terms of resolutions or new delinquencies in July," MacNeill said. She noted that July's new delinquencies reached the lowest level in 2016--$440 million--after averaging $755 million per month so far in 2016.

Morningstar said July's CMBS delinquent unpaid balance equaled $23.5 billion, up 3.3 percent from June but down nearly 20 percent compared to a year ago.

MacNeill said delinquency rates by property type currently equal:
-- 4.73 percent for retail, up from 4.64 percent in June;
--4.56 percent for office, down from 4.59 percent;
--4.30 percent for hotel, up from 4.22 percent;
--0.86 percent for multifamily, up from 0.83 percent;
--3.98 percent for industrial, down from 4.13 percent.

July's largest resolution, the $31.6 million Lakeside Market retail asset in Plano, Texas, was disposed with no losses, Fitch reported. The $27 million Yankee Candle Co. mixed-use property in South Deerfield, Mass., became the largest new delinquency.

Looking at CMBS maturities, "the cracks in the maturity wall are widening as the payoff rate for maturing securitized commercial mortgages dropped to its lowest level in more than two years," Morningstar said.

The payoff rate sank to 62.7 percent in July from 68.0 percent in June, Morningstar said. That resulted in the year-to-date payoff rate for CMBS declining to 76.0 percent from 78.5 percent last month. Morningstar estimates that the payoff rate will fall to about 70 percent by the end of 2016.

"As the crest of the maturity wave looms next year, Morningstar expects difficulties to continue this year and next, as many of the maturing loans, underwritten with overly optimistic cash flow assumptions during the market's peak of 2006-07, may have trouble refinancing because of challenging loan metrics, impending regulations and a stricter lending environment," Morningstar's Maturity Report said.

Meanwhile, third-party loan valuation service DebtX, Boston, noted that CMBS loan prices increased in June, the latest data available. The estimated price of whole loans securing the CMBS universe rose to 99.9 percent from 98.6 percent in May, said DebtX Managing Director Will Mercer. Prices equaled 98.6 percent in June 2015.

"CMBS prices rose in June and year-over-year, but we also saw a slight decrease in the median loan yield," Mercer said. "The downward movement of the Treasury yield curve was the primary driver of the increase in prices."

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