CMBS Deliquency Rate Tops 9% for the First Time

by: Research Recap

The delinquency rate on loans included in US Commercial Mortgage-Backed Securities (CMBS) conduit/fusion transactions increased 22 basis points in January to 9.01%, according to Moody’s Investors Service’s Delinquency Tracker (DQT).

January marks the first time the delinquency rate has been above 9%. This is the seventh straight month the rate has increased by less than 25 basis points. The total number of delinquent loans fell during the month, the third time they have done so during the current downtown.

Moody’s expects the delinquency rate to continue rising in 2011, but at a slower pace than it has over the past two years, reflecting early signs of a gradual turnaround in commercial real estate markets.

“The balance of loans leaving delinquency status in January was very high,” notes Moody’s Managing Director Nick Levidy. “More of the same is anticipated in the months ahead, underpinning our conviction that the delinquency rate will continue to moderate in 2011.”

During January loans totaling $4.4 billion became newly delinquent, while previously delinquent loans totaling approximately $3.6 billion became current, worked out, or disposed. In all, the total number of delinquent loans decreased in January to 4,052 from 4,104, and the total balance of delinquent loans increased to $55.7 billion from $54.9 billion.

Moody’s Delinquency Tracker (DQT) tracks all loans in US conduit and fusion deals issued in 1998 or later with a current balance greater than zero.

By property type, multifamily properties saw the largest increase in delinquency balance, which rose by just over $1 billion, pushing the delinquency rate for multifamily properties up 121 basis points to 15.59%. Moody’s notes that three loan portfolios totaling $915 million made up the majority of the new delinquencies.

The industrial sector had the largest percentage increase of the five main property types, its delinquency rate rising 259 basis points during the month to 9.13%. As with multifamily, a few loans caused most the climb, with two industrial loans totaling a combined $623 million accounting for most of the new delinquencies.

The delinquency rate for retail properties declined for the first time since February 2010. During January, it fell 17 basis points to 7.27% as the balance of delinquent loans dropped by $443 million.

The delinquency rate for office properties also dropped, for the third time in the last four months. During January it fell 28 basis points to 6.43%, the lowest rate among the property types.

Hotels continue to be the worst performing category. Its delinquency rate increased 38 basis points in January, to end the month at 16.75%.

For details, see Moody’s CMBS Delinquency Tracker, February 2011