Wednesday, December 1, 2010

Not So Fast: CMBS Delinquency Rate Jumps 35 Basis Points in November after October's Dip; Rate Back Near 9%

Multifamily Passes Hotels for Dubious Distinction of Worst Performing Major Property Type
For months, we've spoken about the leveling off of the delinquency rate for U.S. commercial real estate loans in CMBS. Beginning in June, what had been 40 basis point increases each month started to turn into 10 to 20 basis point increases. Finally, in October, came the first dip in the delinquency rate in over a year giving many (including us) the belief that the peak was nearing. We frequently pointed out however that as special servicers became more adept at processing troubled loans, the delinquency rate would continue to see downward pressure.

The November numbers throw cold water on the enthusiasm that's built up over the last six months.

Overall, the delinquency rate in November jumped 35 basis points, the largest increase since May 2010. This jump puts the percentage of loans 30+ days delinquent, in foreclosure or REO back up to 8.93%, the second highest ever after September's 9.05%. The jump comes despite the fact that new issues are starting to make their way into the calculation. These new deals, which theoretically should have low delinquencies for a while, will put some downward pressure on the rate.

It would not surprise us very much if the rate continues to bounce around. As we noted last month, the big dip in the October delinquency rate was due to the resolution of the Extended Stay Hotels loan. Prior to its resolution, that loan accounted for about 50 basis points in the delinquency calculation. Along these same lines, once the $3 billion Stuyvesant Town loan is resolved, there will be another 40 basis points worth of delinquencies removed in one fell swoop.

The rate of increase has averaged 29 basis points per month over the previous 12 months (after backing out the Stuyvesant Town impact in March and the Extended Stay Hotels impact in October).

The delinquency rate for seriously impaired loans has also increased. The percentage of loans seriously delinquent (60+ days delinquent, in foreclosure, REO or non-performing balloons) is now 8.13% an increase of 17 basis points.
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