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CMBS Delinquency Rate Plummets on Biggest Drop in Over a Year

Commercial and Multifamily Property

Trepp LLC, a provider of information, analytics and technology to the commercial mortgage-backed securities (CMBS), commercial real estate and banking markets, released its October 2012 U.S. CMBS Delinquency Report, which has found that the delinquency rate for U.S. commercial real estate loans in CMBS fell 30 basis points to 9.69 percent in October. This was the biggest drop in the delinquency rate in 14 months and the third straight month in which the rate has improved. Loan resolutions remained high in October, with over $1.5 billion in loans resolved with losses. The removal of these loans from the delinquent loan category helped drive the delinquency rate down.

On the other hand, there were nearly $2.6 billion of newly delinquent loans in October. While these loans put upward pressure on the rate, the total was significantly less than September's $3.3 billion of newly delinquent loans. Loans that cured in October put downward pressure on the rate, essentially offsetting the amount of loans that became delinquent.

"The CMBS market had every excuse to sell off in October—a devastating hurricane, uncertainty over the upcoming U.S. election, and lack of progress in addressing the fiscal cliff," said Manus Clancy, senior managing director of Trepp. "Despite this, the CMBS market enjoyed another terrific month. Spreads dropped once again, making refinancing possible for previously marginal performing properties while the delinquency rate continued to march lower. Overall, there was a lot to cheer about for CMBS investors."

According to the Trepp report, the improvement may not be over yet. The firm sees no reason for the volume of loans being resolved each month to drop. In addition, borrowing costs remain extremely low while the appetite for distressed real estate remains high. This should allow special servicers to operate at a high speed for the foreseeable future. Among the major property types, the multifamily delinquency rate was the only one to move higher. Industrial, lodging, office and retail loans all saw substantial improvement in their rates.

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