CMBS loan delinquency rose in July to 4.76%, up 16 basis points (bp) from June, according to Trepp. The July delinquency rate is 61 bp above its multiyear low of 4.15% recorded in February 2016. The delinquency rate was negatively impacted by loans unable to pay off at maturity, thereby being classified as delinquent. As previously reported, a significant amount of CMBS loans written in 2006 at the peak of the CMBS market are maturing now. Many of these loans are not meeting current underwriting standards to generate enough loan proceeds to pay off the loan balance at maturity.
The problem worsened due to the CMBS market pullback in spring 2016. As b-buyers pushed back on lesser quality loans and market spreads moved out, making loans less profitable, lenders became increasingly conservative in terms of loan underwriting. Maturing loans that might have been approved for adequate proceeds to pay off existing debt found their loan proceeds cut to levels that required too much cash equity to close or were turned down altogether. Mezzanine lenders that were supposed to fill the gap have not participated materially in solving the problem.
Vacancy by Property Type – July 2016