Late Pays on CMBS Loans Unexpectedly Drop in January


Late payments on securitized commercial mortgages fell modestly in January, bucking the recent trend.

The Trepp CMBS Delinquency Rate, which had been moving steadily higher for almost a year, is now 5.18%, a drop of 5 basis points from December. It had climbed steadily higher in nine of the previous 10 months as loans from 2006 and 2007 reached their maturity dates and could not be repaid via refinancing.

Commercial mortgages typically have tenors of 10 years, and they amortize very little; the bulk of the principal comes due in a final “balloon” payment.

The delinquency rate is now 86 basis points higher than the year-ago level. The rate hit a multiyear low of 4.15% in February 2016. The all-time high was 10.34% in July 2012.

The dip in January comes as a bit of a surprise.

With a cascade of loans from the 2007 vintage coming due in 2017, Trepp had predicted that late payments were unlikely to go down in the near future.

“For at least one month, that prediction failed to hold true,” the data provider said in a statement published Tuesday. “We will now watch to see whether this is indeed a blip or an inflection point. One thing that would push the rate lower is a quickened pace of loan resolutions for notes in default. If that were to take place, the reading could certainly hold steady or continue to fall.”

Many of the stronger performing loans from 2006 and 2007 were either defeased prior to maturity, or paid off before during and “open period” shortly before they matured. Those that made it to their maturity date tended to be loans with more middling debt service coverage or uncertainty in their rent rolls.

In January, almost $2 billion in loans became newly delinquent. This put 45 basis points of upward pressure on the delinquency rate, and “served as evidence that the rate at which water is going into the bathtub is still formidable,” Trepp said. A sizable portion of the $2 billion comes from loans that had been current, but could not be refinanced before they matured.

Offsetting the jump in delinquent loans were CMBS loans that were previously delinquent but paid off with a loss or at par, representing “water that left the bathtub.” That group totaled about $1.8 billion. Removing these previously distressed assets from the numerator of the delinquency calculation helped move the rate down by 40 basis points.

Just over $700 million in loans were cured last month, which helped push delinquencies lower by another 16 basis points.

The percentage of loans that are seriously delinquent, or more that 60 days past due, delinquent, in foreclosure, or repossessed, is now 5.01%. That’s seven basis points lower than in December.

The biggest improvement was in retail loans, which have recently been some of the worst performers due to story closures by a number of big box retailers. Late payments in this sector came down 27 basis points in January to 6.1%.

The multifamily sector, which has been the strongest performing recently, also experienced a decline in delinquencies of 24 basis points to 2.96%.

The lodging delinquency rate fell one basis point to 3.56%. The office delinquency rate dropped two basis points to 7.11%. But the industrial delinquency rate jumped 40 basis points to 6.02%.

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