This year has seen an uneven recovery in the CMBS market, as the delinquency rate in the sector continues to zigzag a few points up or down each month. In June, the CMBS delinquency rate for the overall market reached 5.45 percent, a 5 basis points uptick from the figure reported the month prior, according to New York City-based research firm Trepp LLC. The increase was due to $1.4 billion in loans becoming newly delinquent, while only $400 million in loans were cured during the same period.
The good news is that three of the five core commercial property sectors saw improved delinquency figures in June, according to Trepp estimates. The industrial sector experienced the greatest month-over-month improvement, as the CMBS delinquency rate for industrial properties fell 38 basis points, to 7.12 percent. Delinquencies also declined in the lodging and office sectors, albeit a lot more modestly (by 5 basis points and 3 basis points respectively, to 3.75 percent and 5.9 percent).
However, the delinquency rate jumped by 11 basis points in both the multifamily and the retail sector, to 8.73 percent and 5.54 percent respectively.
Nevertheless, it may be loans backed by office properties that represent the greatest delinquency risk in the CMBS market, according to a recent report from Morningstar Credit Ratings. In May, more than 40 percent of all CMBS loans on Morningstar’s Watchlist were backed by office buildings. This was followed by loans backed by retail centers (26 percent of the Watchlist) and loans backed by multifamily assets (12 percent). Loans on all other commercial property types individually made up less than 8 percent of the Watchlist.
Another concern for CMBS market participants is the volume of loans scheduled to mature this year relative to expected new CMBS issuance. In June, CMBS shops originated $10.4 billion in new loans, $100,000 million short of the figure reported for June 2014, according to Commercial Mortgage Alert, an industry newsletter. Overall, CMBS issuance in the first half of this year totaled $54.4 billion, up from $40.8 billion in the first half of 2014. Meghan C. Kelleher and Chong C. Sin, analysts with J.P. Morgan Securities LLC, expect new issuance to pick up slightly from its current pace in the second half of 2015, but their forecast for the full-year remains at $105 billion. Plus, there may be potential fallout for the CMBS market from the anticipation of an interest rate hike.
“If conduit originators choose to adopt a ‘wait and see’ strategy before September, issuance in the third quarter could be quitter than expected,” they write.