After a dismal July delinquency reading, the CMBS market rebounded smartly in August, according to Trepp. The delinquency rate for U.S. commercial real estate loans in CMBS fell 36 basis points (bp) in August to 9.52%. This is the second-largest drop since the beginning of the credit crisis in 2008 and the third time the rate has dropped in the past four months.
After a streak of bad headlines that lasted from late spring through summer, the CMBS market was thirsting for some positive news. Between lenders pulling back, a failed deal closing, and concerns that European banks and the U.S. economy were headed for the rocks, CMBS investors had turned very bearish on CMBS prospects.
The drop in CMBS delinquencies in August appears to be the first piece of good news for the market in a while. As in July, a big part of the change in the rate was the result of the way some special servicers have been reporting data. In July, special servicers started to flag many “dual-tracked loans” – those in which the special servicer was pursing both a modification and a foreclosure strategy – as having a workout code of “in foreclosure.” This caused the rate to spike sharply in July. However, what the special servicers giveth, the special servicers taketh away. In August, the special servicers reversed many of these reclassifications, putting some downward pressure on the rate.
Below is a summary of the delinquency rates by asset class:
• Hotel delinquency rate marched down 128 bp – now 13.76%.
• Office delinquency rate remained unchanged at 8.17%.
• Industrial delinquency rate jumped 15 bp to 11.24%.
• Multifamily delinquency rate fell 50 bp – remains worst major property type at 16.44%.
• Retail delinquency rate dropped 47 bp to 7.38% – remains the best performing major property type.