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CMBS 2.0 Delinquencies Virtually Non-Existent

Tighter Post-Recession Credit Environment Keep Newer CMBS Delinquencies Near Zero
June 17, 2013
Delinquencies for U.S. CMBS 2.0 remain virtually nonexistent, which helped to keep the overall rate of late-pays steady, according to the latest index results from Fitch Ratings.

CMBS late-pays declined seven basis points (bps) in May to 7.37% from 7.44% a month earlier.

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Meanwhile, delinquencies for transactions issued post-2009 (CMBS 2.0) stood at just 0.03%. The tighter post-recession credit environment coupled with still-low interest rates is helping to keep newer CMBS delinquencies hovering near zero.

Conversely, the peak vintage (2006-2008) delinquency rate remained high at 11.6%, compared with 6.75% for transactions issued in 2005 and prior.

The CMBS 2.0 rate consists of just $31.2 million in delinquent loans, nearly all of which stems from a single, seasoned transaction (LStar 2011-1). According to Moody's Investors Service, currently, 12 loans, representing 16% of the pool, are in special servicing. The largest specially serviced loan is the 201, 241 and 245 S. Yale St. secured by a 144-unit multifamily complex in Hemet, CA. The servicer is now pursuing foreclosure.

The remaining 11 specially serviced loans are secured by a mix of multifamily, mixed use, retail, office, and industrial property types. The servicer has recognized an aggregate $6 million appraisal reduction on eight of the 12 specially serviced loans. Moody's estimates an aggregate $10 million loss for all specially serviced loans.

According to Fitch, if seasoned and nonperforming transactions are excluded, CMBS 2.0 has seen only two 60-day delinquencies to date: the $2.4 million Lockaway Self Storage loan (GSMS 2012-GC6), which became 60-days delinquent in March; and the $4.2 million Roble Vista Apartments loan (FREMF 2011-K14), which fell 60-days behind in payments just last month. Lockaway was impacted by sharply declining occupancy since issuance, while the Roble Vista borrower has been unresponsive regarding payment delays and in providing financial statements.

Fitch Ratings is also closely monitoring several other underperforming loans in the 2.0 deals including two that may enter the index in the coming months (both of which were 30-days delinquent as of last month): a $13 million multifamily loan (WFRBS 2011-C3), which has fallen one-month late in payments twice since the start of the year; and a $7 million multifamily loan (FREMF 2011-K10), which has been late every month since January.

Despite downward pressure from resolutions and strong new issuance, two notable new additions in May to the late-pay ranks kept the overall rate of delinquencies largely stable.

The largest new addition was the $190 million StratReal Industrial Portfolio I (BACM 2007-1), backed by a portfolio of industrial properties with the majority located around Memphis, TN, and Columbus, OH. The portfolio has suffered from declining occupancy. The loan was reported as in foreclosure for the first time in May, with a deed in lieu of foreclosure (DIL) noted as likely.

This follows a similar course as the $186 million StratReal Industrial Portfolio II (JPMCC 2007-LDP10), which defaulted and transferred to special servicing in December of last year. The controlling entity is reported to have agreed to a deed-in-lieu for that loan as well.

The second largest new addition was the originally $120 million loan (in both GECMC 2003-C2 and GMAC 2003-C2) to General Growth Properties (GGP) on the Boulevard Mall in Las Vegas. The loan was modified in 2010, with the maturity date pushed out five years to 2018. The loan transferred to special servicing for the second time in January of this year for imminent default. Performance has suffered from a decrease in occupancy and as of year-end 2012; the loan was covering debt service at less than 1.0x. In May, the loan fell 60-days delinquent in payments.

Delinquency rates for most major property types moved lower last month with the exception of industrial, which jumped sharply because of the StratReal Portfolio. The multifamily rate dropped nearly 50 basis point, helped by more than $3 billion in new Freddie Mac issuance last month.

In addition, the rates for hotels, retail, and office also improved month-over-month by 31, 18 and 4 bps, respectively. The improvement in the retail rate came despite the addition of the Boulevard Mall loan.

Current and previous delinquency rates are as follows.

- Industrial: 10.81% (from 9.82% in April)
- Office: 8.35% (from 8.39%)
- Multifamily: 7.91% (from 8.38%)
- Hotel: 7.70% (from 8.01%)
- Retail: 6.92% (from 7.10%)

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