Finance Midwest

CMBS delinquency hits all-time high

Trepp-Delinquency-Chart-7-11

In July, the delinquency rate for U.S. commercial real estate loans in CMBS shot up 51 basis points to 9.88 percent. This is the highest delinquency rate in the history of the CMBS market. The spike comes after two consecutive drops in the rate for May and June, which was the first back-to-back monthly drop since the credit crisis began in 2008.

In July, Trepp reports that the delinquency rate for U.S. commercial real estate loans in CMBS shot up 51 basis points to 9.88 percent. This is the highest delinquency rate in the history of the CMBS market. The spike comes after two consecutive drops in the rate for May and June, which was the first back-to-back monthly drop since the credit crisis began in 2008.

Much of the jump, however, can be credited to a technical change in the way some special servicers have been reporting data.  Historically, the Trepp Delinquency Rate has treated a loan as delinquent when the servicer has said that they were pursuing a foreclosure strategy.

In the past, there had been a modest percentage of such loans that were current for which the special servicer was pursuing a foreclosure claim.  In July, many more loans that were on a duel track for foreclosure or modification were assigned a “foreclosure” workout code.  An additional 26 basis points worth of loans were assessed a “foreclosure” strategy, even though the loan was current or within its grace period.

Despite the drops in May and June, the delinquency rate has been steadily increasing for the past year. One year ago, the overall U.S. delinquency rate was 8.71 percent and the rate of seriously delinquent loans (60+ days delinquent, in foreclosure, REO or non-performing balloons) was at 7.95 percent. The rate for seriously delinquent loans stands at 9.14 percent in July of 2011.

In terms of delinquency rate by product type, retail has now surpassed office as the best performing property. Office, lodging, and multifamily all increased delinquency rates considerably, while industrial was the only product to improve in the second quarter.

  • Office delinquency rate up 82 basis points – rate cracks 8% for the first time
  • Hotel delinquency rate spikes 117 basis points – now 15.04%
  • Industrial delinquency rate falls 59 basis points as the only major property type to retreat – now 11.09%
  • Multifamily delinquency rate moves up 46 basis points – remains worst major property type at 16.94%
  • Retail delinquency rate inches up 3 basis points to 7.85%, passing Office as the best performing major property type