CMBS Delinquency Rate Increases For a Change

Michael Tucker mtucker@mba.org

April 10, 2019


The commercial mortgage-backed securities delinquency rate did something rarely seen recently: it increased.

Trepp LLC, New York, said delinquencies for U.S. commercial real estate loans in CMBS rose one basis point to 2.88 percent last month, the first rate increase in five months and only the third increase in the past 21 months. The delinquency reading has dropped 167 basis points year over year.

"During March Madness, college basketball teams have to win six games in a row to capture the NCAA title," said Trepp Senior Managing Director Manus Clancy. "If the CMBS delinquency rate was a figurative college squad and monthly delinquency rate improvements were tournament wins, its most recent streak would have gotten it to the title game. However, the rate rose in March, so its five-month winning streak has ended and no nets will be cut down just yet."

Other CMBS metrics have not been as consistent. Clancy called 2019's first three months a "mixed bag" for the CMBS markets. "On the positive side, spreads tightened nicely following December's turbulence and CMBS issuance has been steady. However, retail bankruptcies continue to plague that part of the market and hints of a U.S. economic slowdown continue to materialize." He said he believes the market's current conditions will lead to continued delinquency rate drops over the next six months, "but those improvements won't be as steep as those from the last 18 months."

Fitch Ratings, New York, said the delinquency rate for retail properties rose 31 basis points in March to 5 percent--highest among the property types. The multifamily delinquency rate rose two basis points to 0.51 percent and the hotel sector saw a one point increase to 1.65 percent.

Both the office and industrial sectors saw delinquency rate decreases, Fitch reported. The office sector's rate fell three basis points in March to 2.56 percent and the industrial sector's rate dipped two basis points to 0.96 percent.

DebtX, Boston, reported the prices of commercial real estate loans underlying CMBS declined slightly in February. The estimated price of whole loans securing the CMBS universe decreased to 96.6 percent on February 28 from 96.7 percent on January 31. Prices equaled 96.5 percent in February 2018.

"The slight decrease in loan prices in the CMBS universe in February was the result of an increase in the Treasury yield curve," DebtX Managing Director Will Mercer said.

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