June CMBS Delinquency Rate Increases

Michael Tucker mtucker@mba.org

July 09, 2019

The commercial mortgage-backed securities delinquency rate saw a rare increase in June, but that figure comes with a "footnote," reported Trepp, New York.

Trepp's delinquency rate reading increased 18 basis points during June to 2.84 percent--only the fourth monthly increase over the last two years. Trepp Managing Director Manus Clancy said the single-borrower CLNS 2017-IKPR deal represents the footnote. The portfolio loan behind that $754 million loan showed up as a non-performing loan that passed its maturity date.

But the CLNS 2017-IKPR loan has three embedded one-year extension options, Clancy said. "Servicer watchlist notes this month indicate that the borrower is exercising that option and we expect the loan to appear as current again next month," he said. He noted if that loan had been deemed current the June delinquency rate would have been 2.68 percent, a minor two basis point increase compared to May.

The CMBS delinquency rate has dropped 111 basis points (using the 2.84 percent rate) compared to a year ago, Clancy said, noting the delinquency rate started dropping in mid-2017 and has fallen in 20 of the past 24 months.

The CMBS delinquency rate peaked at 10.34 percent in July 2012.

Citi Research, New York, noted the delinquent balance increased by $55.2 million in June as new issue delinquency transitions outpaced legacy liquidations. The firm said a $2.6 billion positive net supply increased the denominator balance to $356 billion, holding down the overall delinquency rate.

CMBS market performance will likely remain stable throughout this year despite some signs the market may slow, said Morningstar Credit Ratings, New York. "Although there are some signals of a larger economic slowdown, we expect CMBS issuance to remain stable in the second half of 2019 because of strong real estate fundamentals," said Morningstar Assistant Vice President of Credit Risk Services Sarah Helwig. "We believe the delinquency rate will remain low; however, the rates for post-crisis and multifamily loans are beginning to creep up."

Helwig noted real estate fundamentals remain strong across most property types. "However, we see pockets of risk in each asset type, including multifamily and industrial properties," she said in Morningstar's CMBS Third Quarter Market Outlook.

DebtX, Boston, said prices of commercial real estate loans underlying CMBS increased in May. The estimated price of whole loans securing the CMBS universe increased to 99.4 percent during May from 97.8 percent on April 30. Prices equaled 96.5 percent in May 2018.

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