CMBS Delinquencies Pick Up, as Do Loss Severities

The December delinquency rate for U.S. commercial real estate loans packaged into CMBS rose seven basis points to 9.58%. After a positive November report that saw the delinquency rate fall 26 basis points, the rate reversed course and moved higher in December for the third time in the last four months and for the eighth time in 2011. The value of delinquent loans now stands at $58.5 billion, according to Trepp LLC, which said that further improvements will be hard to come by.

“We view this as the first of a six- to 12-month stretch where the rate could increase by 75 basis points in aggregate,” said Manus Clancy, senior managing director of Trepp. “This will come as a result of the first wave of 2007 originated loans reaching their balloon dates over the next few months.”

The multifamily delinquency rate fell 61 basis points in December but remains the worst performing property type right now, at 15.57%. The lodging delinquency rate fell eight basis points to 12.20% and was the best performing property type year over year. Despite falling 17 basis points, the industrial delinquency rate finished the month at 12.03% and was the worst performing sector for 2011. The office delinquency rate rose 21 basis points to 8.97% and the retail delinquency rate increased 33 basis points in December, to 7.85%.

The volume of CMBS conduit loans liquidated in December retreated sharply, dropping 51% from November’s reading. However, November’s reading was usually high. In fact, it was the highest total since Trepp began tracking this number in January 2010. The December number represents more of a reversion to the mean.

At $1.04 billion, liquidations were about 80% of the 12-month moving average of $1.3 billion per month. Since the beginning of 2010, the special servicers have been liquidating at an average rate of about $1.07 billion per month.

The November liquidations came from 122 loans. That compares to 218 loans that were liquidated in November. The 12-month moving average is 154 loans per month.

The average loan size for liquidated loans was $8.5 million in December. Over the last 12 months, the average size of liquidated loans has also been $8.5 million.

The losses from the December liquidations were almost $518 million–representing an average loss severity of 49.86%. This was down 147 basis points from November’s 51.33% reading.

The December loss severity reading is well above the average loss severity of 43.7% over the last 24 months and also well in excess of the 12 month rolling average of 42.8%.

Source:  Costar


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