CMBS CRE Loan Delinquencies Increase

The 30 days-plus delinquency rate for U.S. commercial real estate loans in CMBS climbed seven basis points to 9.58% in December, according to Trepp LLC.

A 21 bp increase in the office sector to 8.97% and a 33 bp jump in the retail sector to 7.85% offset improvements in the multifamily, lodging and industrial sectors during the month.

Multifamily delinquencies declined 61 bps to 15.57%, lodging delinquencies dropped 8 bps to 12.2% and industrial delinquencies fell 17 bps to 12.03% in December.

Industrial and office delinquencies are up notably from where they were a year ago when they were 8.97% and 6.93%, respectively. Retail delinquencies are down just a basis point from a year ago. Lodging’s delinquency rate is lower compared to 14.31% a year ago, and the multifamily delinquency rate was worse a year ago when it was 16.48%.

Generally, for U.S. CRE loans underlying CMBS, Trepp expects delinquencies to trend upward this year, according to Manus Clancy, senior managing director.

“There is a fair amount of upward pressure,” he said in an interview, noting that a 75 bps aggregate increase in delinquencies could be seen over the course of 2012 as the first wave of 2007 originations reach their balloon dates, more if the economy double-dips and less if it improves.

Loans originated in that year had high appraised values and other loose underwriting based on, for example, expected rather than “as is” rental income growth. This could come back to haunt the industry in 2012, said Clancy, noting that 2007 was a particularly weak year for underwriting.

While the trend toward allowing extensions has addressed some concerns relative to maturing loans from periods of loose underwriting, Clancy said in addition to extended loans there are likely to be “plenty of others unable to refinance.” These instead will most likely default, he said.

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