In June, according to Trepp, the CMBS delinquency rate posted its lowest reading in almost three years. The 42-basis-point (bp) drop in the delinquency rate was the biggest one-month improvement since Trepp began publishing a monthly rate in fall 2009. Four of the five major property types saw their delinquency rates fall in June. The delinquency rate for U.S. commercial real estate loans in CMBS was 8.65% in June. This was the first time the rate has dropped below 9% since November 2010 and the lowest percentage since the October 2010 rate of 8.57%.
The resolution of distressed CMBS loans has been a major factor in driving the delinquency rate lower this year, as was the case in June. Loan resolutions totaled $1.25 billion in June, up sharply from May’s about $858 million. The removal of these distressed loans from the delinquent assets bucket last month created 23 bp of downward pressure on the delinquency number. At the same time, about $1.25 billion in newly delinquent loans was recorded in June, approximately half of May’s total. This put upward pressure of 23 bp on the delinquency rate, negating June’s high level of loan resolutions.
Despite the huge improvement in the delinquency rate, investors ended the month of June asking themselves if the latest salad days for the CMBS market are about to end. The huge wave of new CMBS issuance, refinancing of older loans, new property sales, and higher prices and velocity of selling distressed properties were driven by five-year lows in CMBS spreads and microscopic Treasury yields. Since May 1, however, the yield on the 10-year Treasury is almost 100 bp higher and CMBS AAA spreads 30-40 bp higher. This means significantly higher borrowing costs for property owners, a potential hindrance for many factors driving delinquencies lower.