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CMBS delinquencies fell, but hold the applause

Apparent improvement actually reflects more borrowers getting forbearance

The special servicing rate has increased each month since the coronavirus pandemic hit the United States, and clocked a 55 basis point increase to 10.04 percent in August (iStock)

The delinquency rate for CMBS loans has fallen for two consecutive months. Save the party supplies for later, though, because there is still no reason to celebrate.

Many CMBS lenders have offered forbearance to struggling borrowers during the downturn. When loans enter forbearance, their status is changed to “current” from “delinquent,” even if the borrower cannot pay on time. Given the surge in such arrangements, the delinquency rate does not reflect commercial real estate distress as well as it once did.

The better metric now, according to a report from CMBS data firm Trepp, is the share of loans being handled by special servicers – the companies that borrowers turn to when they need loan relief. And the special servicing rate has increased each month since the coronavirus pandemic hit the United States. It jumped to 10.04 percent in August from 9.49 percent in July.

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Hotel and retail loans have driven the rise. Half of all loans transferred to special servicers in August were backed by hotel properties and one-third by retail properties. Twenty-five percent of all hotel CMBS loans and about 17 percent of all retail CMBS loans were being handled by special servicers by the end of August.

Transfers of loans backed by retail properties to special servicing have not slowed in September. Brookfield Property Partners’ high-end Tyson Galleria mall in McClean, Virginia, was transferred to a special servicing last week after Brookfield fell behind on payments for $282M in outstanding debt.

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BrookfieldCmbsCommercial Real EstateTRD InsightsTrepp