Healthy Gains

(CMBS delinquencies by property type; $ in billions)

By Larry Kay

Source: Standard & Poor’s,, Larry Kay, 212-438-2504

Source: Standard & Poor’s,, Larry Kay, 212-438-2504

Between February 2014 and the same period last year, all of the major property types had fairly healthy declines in delinquency amounts. The totals for lodging, multi-family and office each fell by about one-third, while retail and industrial were not far behind, dropping by 25 percent.

Looking at February’s amount delinquent, lodging had the largest decline at 16 percent, ending the month at $2.8 billion. With the economy recovering, strong transient demand and improving group hotel room bookings, there were across-the-board gains in 2013 for occupancy, average daily rates and RevPAR, according to Smith Travel Research. Our lodging analysts believe that RevPAR will grow for a fifth consecutive year in 2014—by 4 to 6 percent.

Multi-family ended February with $5.4 billion delinquent. Demand for multi-family is still strong, but supply has been increasing. Multi-family housing starts are averaging about 320,000, which is 84 percent of the pre-recession level (380,000 monthly from 2005 to 2007) but more than 2.5 times the 2009 amount. Rent growth in 2013 was slower than in 2011 and 2012, and it is expected to decrease again in 2014 because of increases in supply.

Office still has the most delinquent, at $9.2 billion, but declines have recently accelerated. It could be that office property borrowers are more confident due to increasing office space demand and rent growth. However, based on CoStar Group’s price index, office prices are still one-third lower than at the peak in 2007.

Retail has been lagging other sectors in terms of its recovery, with increasing pressure from e-commerce sales. Retail ended February at $8 billion delinquent, which is the next highest after office. CBRE Group Inc. reported that the retail vacancy rate declined in the fourth quarter to 12 percent from 12.3 percent, though rent growth through the third quarter was negative and is forecasted to be negative for all of 2013.

Industrial finished February with $1.6 billion in delinquencies. E-commerce has stimulated industrial demand because of the warehousing needs of companies that sell via the Internet. Online retailers are expected to continue developing or utilizing existing warehouse space near major cities to compete for same-day delivery capacity. Demand for industrial space should remain strong, supportive of falling industrial delinquencies.

—Larry Kay is director of CMBS for Standard & Poor’s Ratings Services.