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Dodging a Bullet

Wave of CMBS retail loan delinquencies misses Southern California, Trepp data shows.

Despite nagging double-digit unemployment in Southern California, shopping center owners in Los Angeles and San Diego are experiencing some of the lowest retail loan delinquency rates in the nation, according to analytics firm Trepp LLC.

Of the $13 billion in securitized retail loans outstanding in the Los Angeles market, $374 million was in some stage of delinquency in September, reports New York-based Trepp. The local delinquency rate was 2.88% compared with the national average of 7.13%.

The San Francisco-Oakland, Calif. market has the lowest delinquency rate on securitized retail loans at 2.2%. Trepp considers a loan delinquent when it is 30 days or more past due.

“A lot of the more established markets, the Californias, the New Yorks, the Bostons, the Chicagos, really didn't overbuild, so there really was no over-expansion,” says Paul Mancuso, a vice president at Trepp.

Signs of improvement in the beleaguered commercial mortgage-backed securities (CMBS) industry have lapped onto the shores of San Diego. Of the $3.1 billion in CMBS retail loans outstanding in San Diego as of September, $147 million was in some stage of delinquency. That puts the retail loan delinquency rate at 4.69% locally, down from 4.84% in August.

“We haven't had the overbuilding like you see in some markets, like a Texas, because we just don't have the land,” points out Bill Rose, Western regional director of Marcus & Millichap's National Retail Group.

The Los Angeles unemployment rate stood at an unhealthy 12.6% in September, well above the national 9.6% jobless rate, reports the California Employment Development Department.

The effects of the housing foreclosure crisis on the retail market have been cruel at times. Currently the largest CMBS retail loan delinquency by dollar volume in San Diego is a $48 million loan to Metroplex, a 211,000 sq. ft. furniture-related retail center, reports Trepp.

The loan, originated near the height of the real estate bubble in mid-2007, was foreclosed on in May. The property was appraised at $22.2 million in June, less than half the unpaid principal balance, says Trepp.

After nine consecutive quarters of negative net absorption, community and neighborhood shopping centers in Los Angeles posted 65,000 sq. ft. of positive absorption in the third quarter, according to Reis. The vacancy rate dipped from 6.2% in the second quarter to 6.1% in the third quarter.

In contrast, the retail vacancy rate in San Diego rose slightly from 7.5% in the second quarter to 7.6% in the third quarter. But that rate for the Southern California city is still much healthier than the national average vacancy rate of 10.9%, notes Reis.

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