According to Trepp, in the month of June, commercial mortgage-backed securities (CMBS) spreads widened noticeably. The trend continued for the better part of July, and in turn, CMBS issuers grew tentative about new lending, leading some players in the industry to begin lowering their expectations for CMBS lending in the second half of 2011. This spike was assisted by Standard & Poor's (S&P) pulling its rating for a new issue underwritten by Goldman Sachs and Citibank in late July.
In July, the delinquency rate for U.S. commercial real estate loans in CMBS shot up 51 basis points to 9.88 percent, the highest delinquency rate in the history of the CMBS market. The spike comes after two consecutive drops in the rate for May and June, which was the first back-to-back monthly drop since the credit crisis began in 2008.
Much of the jump can be attributed to a technical change in the way some special servicers have been reporting data. Historically, the Trepp Delinquency Rate has treated a loan as delinquent when the servicer has said that they were pursuing a foreclosure strategy.
In the past, there had been a modest percentage of such loans that were current for which the special servicer was pursuing a foreclosure claim. In June, for example, this amounted to 20 basis points of the delinquency rate. In July, many more loans that were on a dual track for foreclosure or loan modification were assigned a “foreclosure” workout code. An additional 26 basis points worth of loans were assessed a “foreclosure” strategy, even though the loan was current or within its grace period. This category jumped from 20 basis points to 46 basis points.
The elimination of troubled loans—losses endured by CMBS loans—reduced the delinquency rate by about 21 basis points. The net of this, once the reclassification of loans is accounted for and loss resolutions are factored in, is that the core rate jumped about 46 basis points. The percentage of loans seriously delinquent, defined as 60-plus days in foreclosure, in real estate-owned (REO) or non-performing balloons, is now 9.14 percent. By that measure, the rate was up 39 basis points.
Highlights of the Trepp report include:
►The percentage of loans 30-plus days delinquent or in foreclosure— July: 9.88 percent, June: 9.37 percent, and May: 9.60 percent
►If defeased loans were taken out of the equation, the overall delinquency rate would be 10.38 percent, up 53 basis points from June 2011
►The percentage of loans seriously delinquent (60-plus days delinquent, in foreclosure, REO or non-performing balloons) is at 9.14 percent, up 39 basis points from June 2011
►In July of 2011, the overall U.S. delinquency rate was 8.71 percent
►Just six months ago, the overall U.S. delinquency rate was 9.39 percent
►One year ago, the rate of U.S. loans seriously delinquent was 7.95 percent
►Six months ago, the rate of U.S. loans seriously delinquent was 8.75 percent
►Office delinquency rates were up 82 basis points
►Hotel delinquency rate spikes up to 117 basis points, currently at 15.04 percent
►The industrial delinquency rate has fallen 59 basis points as the only major property type to retreat, now standing at 11.09 percent
►Multifamily delinquency rates rose up 46 basis points, remaining one of the worst major property types at 16.94 percent
►The retail delinquency rate inches up three basis points to 7.85 percent, passing office spaces as the best performing major property type