In a sign that the troublesome class of 2007 loans has not yet made the grade, the CMBS delinquency rate hit a new high in May after steadily creeping up over the last three months. New research from Trepp shows that the delinquency rate is now 10.04%, up 24 basis points (bp) from last month (9.8%) and a whopping 67 bp since February (9.37%), an indication that the rocky CMBS market has not yet reached solid ground.
“It is definitely not exactly as we and others have thought over the last three to five months,” said Manus Clancy, senior managing director at Trepp. Clancy predicted earlier in the year that the market could easily see a spike of 70 bp in the short term, as five-year loans that were securitized in 2007 began to reach their maturity dates. The good news, he said, is that these loans were “heavily” front loaded.
“We should see another month or two where we kind of bump along in a negative direction, but after that, we should start seeing the delinquency rate start to level off beginning in the middle of the summer,” Clancy said, noting that the rate could continue to edge up in the next couple of months. Out of the five major property types, the delinquency rate was driven by large increases in hotel and industrial loans. According to the report, the hotel delinquency rate surged 172 bp and is now back over 12%, and the industrial delinquency rate is up 46 bp and remains the second-worst category at 12.82% currently versus 11.96% in 2011.
And despite its strength in the overall marketplace, Clancy said the worst sector is multifamily, at 15.17%. “On bank balance sheets, multifamily has done pretty well, and in the REIT sector, it has done well,” he said, explaining that a large chunk of the 15.17% is made up of loans that were done like Stuyvesant Town, which holds a delinquent $3-billion loan, amounting to 4% of the total number, but we “should see a leveling off in the second half of the year.”