CMBS delinquency rates keep falling


By John Rehkop. After several years of stagnant growth, the commercial mortgage backed security (CMBS) market continues to pick up steam as a rise in new loan issuance is causing delinquency rates for commercial loans to fall, both locally and nationally, according to commercial real estate research firm Trepp, LLC.

In the Charlotte metropolitan area, balance of CMBS loans at least 30 days delinquent dropped to 3.6 percent of total loans outstanding, falling from $215 million in May 2014 to $162 million this past May.  Nationally, the 30-day delinquency rate stands at 5.4 percent, according to the Trepp report.

Back in 2011 the Charlotte delinquency rate was nearing 9.5 percent.

“There has been steady momentum and growth the last couple years,” says Aquesta Bank President and CEO Jim Engel, noting the 30 percent rise in Aquesta’s total loan portfolio last year. “And it has been across the board (in terms of property types).”

Trepp tracks and reports only on loans that are packaged and sold as commercial mortgage backed securities, a fixed-income investment product that uses commercial real estate loans as collateral. Trepp estimates that CMBS loans account for roughly 60 to 70 percent of all commercial loans.

Because they are backed by commercial mortgages with unique underlying assets, as opposed to residential real estate, they tend to be more complex and volatile.

“We are seeing a rebirth in the CMBS market,” said Trepp Research Analyst Sean Barrie. “We are expecting a $100 billion in new CMBS loan issuance this year. The Charlotte data is in lock step with what we’re seeing across the country.”

The delinquency rate decline over the past 12 months can be linked to several factors, according to Barrie.  Chief among them is the influx of new money into the market.

According to the report, approximately $1.8 billion in new CMBS loans were secured in the Charlotte metropolitan area in 2014 and 2015 combined. The Business Today market totaled $267 million in new issuance over the same time period.

Trepp reported that of the five major property types, lodging had the steepest drop in delinquencies nationally in May, to a rate of only 3.8 percent.  Multifamily remains the worst-performing property sector, with a delinquency rate of 8.6 percent.

The six loans in the Business Today area that are the most distressed, or at least 90 days delinquent, consist of three hotels and three retail centers, according to Trepp’s report.

The peak in local delinquencies was May 2011, when the rate stood at an eye-popping 9.5 percent.  That spike can be attributed largely to the pre-recession exuberance in commercial real estate market, and the number of 5-year loans issued in 2006.  The rebound of the CMBS market is another signal of investors’ increased appetite for risk and that the effects of the Great Recession have faded.

In addition to benefiting from the rise in recent commercial activity, the commercial mortgage market has also witnessed an increase in property values and flushing of old distressed loans through the system.


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