US CMBS Delinquency Rate Exceeds 2% for First Time
Large loan defaults coupled with declining performance on multifamily and retail properties resulted in a 29 basis point climb to 2.07% for U.S. CMBS delinquencies in May, according to the latest Fitch Ratings Loan Delinquency Index.
This marks the highest percentage of delinquencies since Fitch began its Index in 2001.
Meanwhile, in the first of what will be monthly reports, Moody’s CMBS Delinquency Tracker (DQT) for June (based on data through the end of May) records the aggregate rate of delinquencies among US CMBS conduit and fusion loans at 2.27%.
Moody’s expects the aggregate rate to reach 4% to 5% by the end of this year.By comparison, the aggregate rate was at a low of 0.22% in late 2007.
Declining performance, particularly in oversupplied markets, as well as in secondary and tertiary markets, has pushed Fitch’s multifamily delinquency rate to 4.55%, the highest of all property types. Multifamily properties have been highly susceptible to default in CMBS during the current economic downturn.
Moody’s tracker shows multifamily delinquency rates rising most dramatically in recent months, to a level of 4.56% in May, from a low of 0.51% in August 2007. Its previous high had been 1.53%, recorded in March 2005.
Fitch’s 60 days or more delinquency rate for retail properties is slightly higher than the index at 2.24%. This number is expected to climb. As consumer spending continues to tighten, retail properties will likely lose tenants to bankruptcy or store downsizing. Many of the loans that are currently 30 days delinquent are likely to remain delinquent and be included in the Index in June.
Moody’s says loans for retail properties have seen their delinquency rate nearly triple since the start of the year, reaching 2.47%, well surpassing its previous peak of 0.89% in August 2003.
Loans backed by hotels have thus far withstood economic pressures and continue to slightly outperform Fitch’s Index with a 1.91% delinquency rate. Possible reasons for the relative resilience include generally more sophisticated sponsorship and management teams; slightly lower leverage and shorter amortization schedules at issuance; and a reporting lag whereby many year-end audited financials have not yet been finalized. Fitch maintains its expectation that, as occupancy rates and revenues per available room (RevPAR) continue to decline, putting additional stress on borrowers’ operating margins, defaults could rise precipitously.
Moody’s says the other two core property types – industrial and office — have seen more moderate increases in delinquencies in 2008 and 2009.
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