June CMBS Delinquency Rates on the Rise

July 13, 2020 by Dennis R. Baranowski, Esq.

In mid-June, it seemed that a new record for commercial mortgage-backed security (CMBS) delinquencies would be set. But when the final data was aggregated, the July 2012 high of 10.34% still stands as the peak for the moment. Year over year, the overall U.S. CMBS delinquency rate has risen by 748 basis points.

The June Trepp CMBS Delinquency Rate was 10.32%, a rise of 317 basis points from the previous month. Approximately 5% of that total is comprised of loans that have been delinquent for over 30 days, with another 3.2% are now past 60 days delinquent. If defeased loans were taken out of the equation, the overall 30-day delinquency rate would be 10.88%, a rise of 332 basis points from May. This trend could continue into July, with 4.1% of loans by balance missed the June payment but remained under 30 days delinquent. The category of loans in or beyond grace period—referred to as A/B loans—has dipped from 8.1% to 7.6% from April to May.

In terms of CMBS 2.0 loans—in which all cashflow is directed at the senior-most classes—the June delinquency rate increased 840 basis points from the previous year. The portion of CMBS 2.0 loans that are now seriously delinquent is currently 5.27%, which has risen 417 basis points from the preceding month. If defeased loans were removed from consideration, the overall CMBS 2.0 delinquency rate would stand at 9.85%, an increase of 331 basis points for the month.

In the legacy CMBS loan sector, in which payments of interest are senior to payments of principal, the June delinquent rate jumped 471 basis points, eventually peaking at 46.45%. The percentage of CMBS 1.0 debt that is considered seriously delinquent climbed 234 basis points to 43.23%. Without defeased loans, the overall legacy CMBS delinquency rate would be 52.17%.

The industrial delinquency rate performed most optimally, dropping 25 basis points and is currently at 1.57%. The lodging sector saw the most negative data points, jumping 517 basis points to 24.3%. The multifamily property delinquency rate climbed four basis points and now sits at 3.29%, while office and retail settled at 2.66% and 18.07%, respectively.

That data could indicate the market has reached terminal delinquency velocity, which would mean that the majority of borrowers that felt they required debt service relief had asked for it. In other words, if a borrower didn’t require relief between April to June, there is a strong chance the borrower will not be needing it, even though maturity defaults could still cause some issues. Should that be the case, it would be logical to expect lower delinquency rates in the coming months as compared to May and June.

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