Fitch: U.S. CMBS Delinquencies Once Again on Rise

Nine of the 10 newly delinquent loans in excess of $50 million corresponded to office or retail properties, bringing into question whether these sectors are sufficiently stabilizing as the economy takes tentative steps toward improvement.

With $1.6 billion in new defaults on office- and retail-backed loans, U.S. CMBS delinquencies approached 8 percent last month. That’s according to Fitch Ratings, which just released its latest loan delinquency index results.

One vexing element: the 18-basis point increase comes on the heels of a one-time decrease in October. At the moment, the market may be too fragile to hold this trend for very long.

Nine of the 10 newly delinquent loans in excess of $50 million corresponded to office or retail properties, bringing into question whether these sectors are sufficiently stabilizing as the economy takes tentative steps toward improvement. According to Fitch managing director Mary MacNeill, office and retail did well during the recession due to generally longer-term lease agreements, but are now most vulnerable to asset-specific performance declines for the same reason. She added that as leases inked at the market’s peak come up for renewal, they will be marked down to lower market rents, putting pressure on operating income.

The office deliquency rate jumped 25 basis points to 5.6 in November, with forty newly delinquent loans totaling $810 million. Of those exceeding $50 million – and that’s most of those loans – four went delinquent due to declining occupancy or upcoming lease expirations. Moreover, all were originated in the would-be salad days of 2005 to 2007.

In November, 50 retail-backed loans totaling $836 million were added to the delinquency index, boosting the sector-specific delinquency rate to 6.6 percent from 6.3 percent. Malls were largely responsible – 60 percent of new delinquencies were in this category. MacNeill projected that malls will underperform heading into next year, though grocery-anchored and other needs-based shopping centers will do better.

Fitch believes that recovery will come to the office sector in 2012, while the retail sector is expected to stabilize next year.