CMBS Delinquencies Still Climbing, Led by Hotels and Apartments

New CMBS delinquency numbers via Fitch show that hotel loans are the worst performing category of commercial mortgage paper.

The general delinquency rate for all CMBS (according to Fitch) was 3.58% as-of September ’09. That represents a 54 basis point up tick in troubled loans compared to August and a whopping 2.4% jump year to date. The trend is unmistakable and disturbing.

Along with hotels (5.83% delinquent in September), multi-family loans are fairing poorly with a September delinquency rate of 5.72%.

Currently, the biggest debacle in multi-family is a non-performing $195 million loan against the Babcock and Brown portfolio that contains about 14 equity hemorrhaging properties in Nevada, Florida and other locations in the Southeast. Colum Financial made that loan to B&B and, not surprisingly, they are now out of business.

The ever helpful IRS has changed its rules to allow loan services to modify CMBS loans before they default without the huge tax penalties that used to exist. But it takes capital to restructure loans, and the capital markets, especially the mortgage bond markets, are still dysfunctional. In other words, not only is there no liquidity for new loans but there is no liquidity to fund modifications of the old loans.

It seems that all loans are troubled loans now.

If other sectors worsen we can expect overall delinquencies to hit 5% by the second quarter of next year.