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CMBS Recovery Seen Outpacing Housing Market

Delinquencies Dropping; Resolutions Rising
October 3, 2012
The CMBS delinquency rate followed up its impressive August improvement with another decrease in September. The delinquency rate for U.S. commercial real estate loans in CMBS fell 14 basis points to 9.99% in September, according to Trepp LLC. This brings the rate below 10% for the first time since April.

Last month's improvement followed a notable 21 basis point drop in August, the largest one-month drop since November 2011.

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Reacting to the report, John Tashjian, principal of Centurion Real Estate Partners in NYC, said, "The CMBS market is recovering quicker than the broader housing market. Delinquencies are down because of lender and servicer's ability to react more quickly than residential mortgage lenders and the very large amount of capital earmarked to acquire distressed loans. I’d expect to see this trend continue in the coming months."

CMBS loan resolutions remained elevated in September, with more $1.77 billion in loans resolved with losses. September's total was up sharply from $1.5 billion in August. The removal of these loans from the delinquent loan category accounted for 32 basis points of downward pressure on the delinquency rate.

"For several reasons, the delinquency rate should continue to see considerable downward pressure in the months to come," Trepp analyst said. "First, we see no reason for the volume of loans being resolved each month to drop. The appetite for distressed real estate remains high while borrowing costs remain extremely low. This should allow special servicers to operate at a high speed for the foreseeable future."

"Second, the CMBS new issuance market has seen a renaissance over the last three months," Trepp analyst said. "This has led the market to raise its expectations for securitization volume over the next six months."

"Lastly, on a relative basis, fewer loans will come due over the next year. This will make maturity defaults somewhat less of a concern than they have been for the past year," Trepp reported.

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