CMBS Delinquencies Consistently Rising

MBA (10/13/2008 ) Murray, Michael
Loan delinquencies in commercial mortgage-backed securities were up nearly 13 basis points after the first three quarters of this year to 0.52 percent—0.58 percent excluding defeasance loans, based on numbers from Citigroup Securities, New York.

CMBS delinquencies seem to be increasing each month as the credit crisis starts feeding into the general economy, said Darrell Wheeler, head of CMBS at Citigroup.

“The lack of new supply is also leading to a net run-off of outstanding balance, which would tend to raise the headline delinquency rate," Wheeler said. "However, the rate still remains low for now when compared to historical delinquency rates, and dramatically different from the high rates of the subprime residential market. If the economic slowdown is prolonged, we expect to see rising delinquency rates from these low levels, possibly to the 1 percent to 1.5 percent range in early 2009 and 2 percent to 3 percent sometime in 2010.”

However, Realpoint LLC, Horsham, Pa., said more than 35 percent of delinquent unpaid balances in CMBS through August came from transactions issued in 2005-2006 vintages, and more than 20 percent of all delinquencies were found in 2006 transactions.

With 13 percent total delinquency included in the 2007 vintage, more than 48 percent of CMBS delinquency in August came from 2005-2007 vintage transactions, Realpoint's research said.

Nearly 1.4 percent of 65,028 CMBS loans in Citigroup’s universe included delinquencies of 30, 60 and 90 days, one foreclosure and loans for special servicing. They accounted for more than $10 billion out of a total of more than $714.7 billion. Citigroup’s CMBS universe consists of publicly issued, fixed-rate CMBS conduit, fusion, lease-backed, large loan and seasoned loan transactions.

After five straight months of increases, Realpoint showed August’s delinquent unpaid balance for CMBS dropping slightly to $4.07 billion through from a trailing 12-month high of $4.203 billion through July. Special servicing exposure, however, increased to $6.88 billion in August from $6.45 billion in July for $10.95 billion in delinquencies and special servicing.

Total unpaid balance for all CMBS pools reviewed by Realpoint was $862.6 billion in August, down from $863.6 billion in July, with August's delinquency ratio at 0.47 percent, down slightly from 0.49 percent in July and 0.48 percent in June.

"What is more concerning, however, is that the delinquency percentage through August 2008 is up 18 basis points or 62 percent above the 0.29 percent reported one-year prior in August 2007. The increase in both delinquent unpaid balance and delinquency ratio over this time horizon reflect a slow but steady increase from historic lows through mid-2007," said Frank Innaurato, managing director at Realpoint.

CMBS delinquency by unpaid balance increased 29 percent from January’s $3.16 billion and up 84 percent from a six-year low of $2.21 billion in March.

“While both the 30-day and 60-day delinquent loan categories decreased, the distressed 90+-day, foreclosure and REO categories grew for the ninth straight month—up 43 percent since January 2008,” Innaurato said.

Delinquencies also increased in August along with $70.7 million in liquidations reported across 18 loans. Liquidation activity slowed after increases in June and July, due to slowdown from the current credit market climate.

“We expect that these high liquidations, however, are a clear response to increased loan workout and delinquency pressures being placed on special servicers, and may be a precursor to increased distressed asset money returning to the market,” Innaurato said.

Based on Realpoint’s numbers for August, highest loss severities in 2007 were found in industrial and healthcare collateral while multifamily collateral was highest by balance before liquidation. Citigroup showed multifamily as the only sector with current elevated delinquency rates at 1.6 percent in September.

“We recently wrote about the issues facing apartments under rent controls that were aggressively underwritten assuming conversion rates that have not materialized,” Wheeler said.

CMBS delinquencies in Michigan remained elevated at 2.50 percent as the domestic auto sector continued to struggle, but Tennessee and Georgia showed a spike in their rate during September as well, Citigroup said.

Texas, Florida and Michigan—the top three states ranked by delinquency exposure for the past 10 months through August—collectively accounted for 39 percent of CMBS delinquencies, based on Realpoint's research.