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CMBS Delinquencies Rise, But Pace of Growth Abates

CMBS Delinquencies Rise, But Pace of Growth Abates

Delinquencies on CMBS loans continued their upward climb in recent months, according to the most recent reports from Trepp LLC and Realpoint LLC, two research firms that track the sector. But the signs continue to indicate that the CMBS market may be near its bottom.

In July, the delinquent unpaid balance for CMBS rose $387.9 million, up to $60.84 billion from $60.45 billion a month prior, according to Horsham, Pa.-based Realpoint. The increase was dramatically smaller than the average for the first six months of 2010 when delinquencies grew by an average of $3.14 billion per month.

Overall, the delinquent unpaid balance is up 137 percent from a year ago and is now more than 27 times the low point of $2.21 billion in March 2007. The distressed 90+-day, foreclosure and REO categories grew in aggregate for the 31st straight month—up by $4.05 billion from the previous month. The total unpaid balance for CMBS pools reviewed by Realpoint for the July remittance was $780.97 billion down from $784.06 billion in June.

The delinquency ratio for July of 7.79 percent (up from the 7.70 percent reported for June) is more than two times the 3.14 percent reported in July 2009 and more than 27 times the Realpoint recorded low point of 0.28 percent in June 2007.

Realpoint maintained its projection for the delinquent unpaid CMBS balance, which it expects to reach between $80 billion and $90 billion by the end of 2010. The firm also projects the delinquency percentage to reach between 9 percent and 10 percent by the end of the year and possibly hit 11 percent to 12 percent under more heavily stressed scenarios.

By property type, in July, multifamily loans topped retail loans as the greatest contributor to overall CMBS delinquency for the second straight month. Retail loans had been the greatest contributor for six straight months prior to June. Delinquent multifamily loans account for 2.0 percent of the CMBS universe and 25.3 percent of total delinquency. The retail default rate increased slightly to 6.6 percent, up from 6.4 percent in June and up from 3.8 percent one year ago. Realpoint expects retail delinquencies to continue to increase throughout 2010.

Meanwhile, in its monthly report, Trepp said that the CMBS delinquency rate had reached a record 8.92 percent in August, up from 8.71 percent in May. The 21 basis point increase was larger than the 12 basis point increase posted from June to July, but is still lower than the average jump of 35 basis points per month posted over the previous 11 months. The delinquency rate one year ago was 4.03 percent.

There was good news for retail properties, however. The 30+ day delinquency rate on retail dropped from 6.90 percent in July to 6.75 percent in August. The retail delinquency rate is now almost as low as for industrial properties (6.56 percent) and office properties (6.57) percent. Both of those sectors experienced increases in delinquency rates from July to August. Delinquency rates on both sectors have increased more dramatically in the past 12 months than on the retail sector. The lodging (18.92 percent) and multifamily (14.35 percent) sectors remain the most severely distressed, according to Trepp’s figures.

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