The CMBS delinquency rate moved significantly higher in October as investors continued to ask whether the glass was three quarters empty or one quarter full.
In October, the delinquency rate for U.S.
commercial real estate loans in CMBS moved up 21 basis points to 9.77%. The CMBS delinquency rate is now at its second highest level ever. Only the 9.88% reading in July 2011 was higher, according to Trepp LLC
After experiencing a big dip in the delinquency rate in August, the rate has now increased for two straight months.
"We noted last month that the tone in the CMBS market had been extremely negative since the beginning of the summer," Trepp reported. "CMBS investors watched as spreads rose sharply and lenders retrenched from making new loans. Many CMBS investors began to whisper that the impressive rally in CMBS from mid-2010 through May 2011 had taken the market too far, too fast. At the same time, commercial real estate professionals made similar comments about the lofty pricing of trophy properties in the U.S. earlier this year."
"This negative sentiment continued for the better part of October. Word of layoffs at origination and trading shops on Wall Street jolted the market further," Trepp added. "Spreads continued to race upward-- ultimately hitting their highest levels since mid-2010. Researchers at some investment banks offered very bearish predictions for the levels of CMBS issuance in 2012."
Morningstar’s structured credit research and ratings subsidiary RealPoint, also reported that there are future delinquency concerns on the horizon.
Morningstar reported that there are a number of loans on CMBS servicers watch lists that have never met pro-forma underwritten expectations or loans that have experienced significant performance declines. This includes a large number of loans on the master servicer watch lists that remain current in payment but which may ultimately default based upon a denial of requests for loan modifications or debt restructuring or a decision by borrowers to surrender the collateral.
By property type, the greatest future risk exposure by unpaid balance is found in office collateral, while retail collateral is by far the largest by loan count, Morningstar reported.
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