We believe that based on recent economic indicators and property fundamentals, credit conditions for commercial mortgage-backed securities (CMBS) may remain under pressure for some time to come.
Our viewpoint considers the Federal Reserve’s lowered outlook for job growth in an unusually uncertain recovery, historically high vacancy rates among commercial real estate, and low CMBS maturity payoff percentages. In the second quarter, Standard & Poor’s Ratings Services’ U.S. CMBS delinquency rate (7.91%) surpassed the American Council of Life Underwriters (ACLI) peak delinquency rate of 7.53%, which was reported in June 1992.
Despite the high delinquency rate, we are seeing some positive signs emerging. Specifically, property fundamental deterioration is slowing, commercial and multifamily mortgage loan originations increased 35% in the second quarter.