CMBS Delinquencies Multiply, Report KBRA and Trepp

Two new reports from companies tracking the CMBS sector indicate that delinquencies are rising sharply and that the numbers will likely worsen in July.
Manus Clancy, Senior Managing Director at Trepp. Image courtesy of Trepp

June was a tough month for the CMBS sector, with delinquencies jumping to levels well above those of May and further exceeding those of a year ago, according to new reports from Trepp and the Kroll Bond Rating Agency.

By Trepp’s findings, June CMBS delinquencies sat at 10.32 percent—just barely missing the all-time record of 10.34 percent set in July 2012—a startling 317 basis points higher than the figure for May. Compared to one year ago, the overall U.S. CMBS delinquency rate is 748 basis points higher.

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The percentage of loans in special servicing rose from 6.07 percent in May to 8.28 percent in June. The Trepp report notes that as of June, 20.5 percent of all lodging loans were in special servicing—up from 16.2 percent in May—as were 14.3 percent of retail loans, compared to 9.3 percent in May. 

Current overall delinquencies of 30-plus days are higher for both lodging loans (24.30 percent) and retail loans (18.07 percent).

Trepp’s interpretation of the data is “perhaps we have reached terminal delinquency velocity.” In other words, possibly most of the borrowers that need debt service relief have already sought it (setting aside potential issues with maturity defaults).

Second opinion on the damage 

Sacheen Shah, Director, CMBS at KBRA. Image courtesy of KBRA

According to KBRA’s calculations of the CMBS loans it rates, June ended with the overall delinquency rate at 8.2 percent. That was 320 basis points higher than May, after having increased fivefold from February to May. By dollar value, June delinquencies were $23.5 billion, versus May’s $14.4 billion.

Among all property types, the highest rate of delinquency and special servicing was in lodging, at 27 percent. The second-highest rates, in retail and mixed-use properties, were a sizable step lower, at 14.2 percent and 9.5 percent, respectively.

In all, $15.4 billion in loans—or 5.4 percent of the KBRA-rated CMBS universe—is in special servicing, an increase of about 50 percent from KBRA’s last report. In addition, $12 billion in loans are delinquent, but have not yet gone into special servicing. “This subset likely includes loans that may still be in discussions with the servicer regarding a relief request,” the report states.