TRD Insights: CMBS delinquencies decline as borrowers get relief

Marking a turning point since start of crisis, $8B worth of loans in July were reclassified as “current”; but percentage of severely delinquent loans increased

TRD NATIONAL /
Aug.August 06, 2020 08:00 AM
For the first time since the start of the coronavirus crisis, the percentage of CMBS loans that are more than a month behind on payments has gone down. (iStock)

For the first time since the start of the coronavirus crisis, the percentage of CMBS loans that are more than a month behind on payments has gone down. (iStock)

The delinquency rate of CMBS loans has declined — slightly — for the time since the start of the coronavirus crisis.

The percentage of those CMBS loans that are more than a month behind on payments was 9.6 percent at the end of July, down from June’s rate of 10.32 percent, according to the latest delinquency report from Trepp. The June figure was just a few basis points shy of the all-time record in June 2012, when 10.34 percent of CMBS loans were delinquent.

The decline in delinquency was largely due to various types of loan relief, including loan modifications to extend maturity dates, or permission to use loan reserves to make payments. More than $8 billion worth of loans saw their status go from delinquent in June to current in July.

As has been the case since the beginning of the crisis, lodging and retail properties have experienced the most delinquencies of all property types. While the delinquency rate for most asset classes declined somewhat in July, the delinquency rate for multifamily property rose slightly to 3.33 percent.

The latest report still highlights the extent to which borrowers are suffering. Trepp found that the percentage of seriously delinquent loans or those in foreclosure actually ticked up.

The numbers compare to the situation before the pandemic hit, when the delinquency rate reached a low of 2.04 percent.

Trepp analysts had previously predicted the July stabilization, referring to it as “terminal delinquency velocity.”

“Put another way, if a borrower didn’t need relief between April and June, there is a good chance the borrower won’t be needing it,” the report says. “However, with relief windows closing after a three-month respite in most cases, an uptick in delinquencies in the future is likely.”

So while the delinquency rate may rise again — especially given new waves of infections across the country — Trepp analysts expect those increases to be more modest.

While the overall percentage of delinquent CMBS loans has decreased, other metrics have continued to deteriorate, according to the report. The percentage of loans in special servicing rose from 8.28 percent in June to 9.49 percent in July. And the percentage of seriously delinquent loans — those that are more than two months delinquent, or in foreclosure, or worse — rose by 1.61 percentage points to 7.86 percent.


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