CMBS delinquencies plunge, but still above pre-pandemic levels

Bad commercial debt is getting harder to find.

Since peaking at 10 percent last June, the delinquency rate for CMBS loans has fallen for 16 consecutive months, but remains above pre-pandemic levels. Industrial, hotel, retail and multifamily delinquency rates have all improved significantly in the past year, according to a report from Morningstar.

In October, the overall delinquency rate was 4 percent. That’s down 69 basis points from September, but well above the low of 2 percent, set in the pivotal month of March 2020.

New delinquent loans continue to pop up, but not to the extent seen during the height of the pandemic. The volume of newly delinquent loans remained less than $1 billion for the second consecutive month, after having been consistently above it since April 2020.

In October, $819.1 million loans were registered, an increase of $161.8 million from September. The declining delinquency rate was also driven by cured loans exceeding by roughly four times the number of newly delinquent loans.

The $108.7 million Shoppes at Buckland Hills loan was the largest newly delinquent debt. Payments on the loan, which was transferred to a special servicer in November 2020, have been delinquent off and on since June 2020.

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The loan’s collateral, 535,235 square feet of a 1 million-square-foot super-regional mall about 15 miles east of Hartford, Connecticut, will lose its largest anchor, Dick’s Sporting Goods, when the retailer moves about a mile down the road. The store’s lease expires early next year. Another contributor to the property’s woes was the loss of non-collateral anchor Sears earlier this year.

The Shoppes at Buckland Hills was appraised at issuance for $189 million, and Morningstar believes the property’s value has fallen below the loan balance.

Among the sectors, industrial, which is hotter than it has ever been, saw the largest percentage decline in delinquent balance, with loan delinquency falling 54 percent to $135.9 million from $293.1 million one year ago. Next was hotels, tumbling 48 percent, or $7.9 billion, to $8.7 billion because of the resurgence of travel. Retail loan delinquency dropped 46 percent to $10 billion from $18.6 billion one year ago.

Multifamily loan delinquency fell by 42 percent to $919.8 million from $1.58 billion one year ago and office delinquency declined by 18 percent to $2.87 billion from $3.49 billion one year ago.

The payoff rate of maturing CMBS loans registered above 70 percent. Nearly $13 billion in CMBS loans have matured this year and just 57 percent have been paid off on time, ahead of last year’s 45 percent rate but still significantly below 2019’s maturity payoff rate of nearly 80 percent.

Another $1.10 billion is scheduled to mature by year end.