Kroll Bond Rating Agency (KBRA) has created a monthly index to track CMBS loans that it believes are at risk of default. The index tracks not only loans that are already delinquent or in default, but more important, loans that face a high risk of default in the future. These loans, known as “Kroll-Loans of Concern” or K-LOCs, were 7.90% of conduit loans issued since 2010, up from 7.49% a year ago.
The index is primarily forward looking. Only 0.75% of CMBS conduit loans are delinquent and 1.13% are in special servicing as of last month, according to Kroll. That means that KBRA’s research has identified many more loans that are at risk of default in the future.
According to Eric Thompson, Kroll’s CMBS chief, the index is “an informed, forward-looking barometer of credit that’s compiled from real analyses by people who dig into each and every deal.”
The index will be available free on Kroll’s website. The data will be published monthly beginning with January 2017 and on an annual basis retroactive to 2015. The index stood at 3.58% at yearend 2016 before surging amid a wave of distress in the retail sector. Over the past year, it fluctuated between 7.33% and 7.95%.
Kroll notes that the current index is in line with its expectations, but Kroll is keeping watch on retail loans and weakening lodging trends in certain markets. Kroll expects the index to rise modestly in coming months, along with actual delinquency, but does not expect a meaningful spike in either the K-LOC index or the delinquency rate in the near term.