Multifamily Fares Worst as Defaults Hit New High

Posted on Monday, January 10, 2011

NEW YORK CITY-Confirming that this past October's one-month drop in the CMBS delinquency rate was an anomaly, the December 2010 percentage of loans at least 30 days past due climbed 27 basis points to reach an all-time high of 9.2%, with multifamily faring the worst, according to Trepp. Separately, Moody's Investors Service also reports that that serious delinquencies are expected to remain elevated, given the number of large loans in special servicing. The sobering news occurs even as the outlook for new CMBS issues is getting brighter.
"Many have speculated that between the emergence of new CMBS lending, the resolution of many troubled CMBS loans and an uptick in trophy property sales, that the commercial real estate crisis was nearing its final stages," says Manus Clancy, managing director of Trepp, in a release announcing last month's results. "The December delinquency rate underscored that there still may be some nasty surprises in store even as the market shows some signs of healing."
The rate of increase across all five sectors has averaged 27.7 bps per month over the past 12 months, after backing out the impact of the Peter Cooper Village/Stuyvesant Town default on the March '10 results and the Extended Stay Hotels resolution in October. The delinquency rate is now up 62 bps over October's level, and the increase occurs even with new CMBS deals making their way into the equation, according to Trepp. These new deals as well as the resolution of troubled loans should put downward pressure on the delinquency rate, the data analysis firm says.
Bloomberg reported Tuesday that JPMorgan Chase and a partnership of Deutsche Bank and UBS AG were preparing to bring up to $4 billion of new mortgage-backed bonds to market. The $2.5-billion Deutsche Bank/UBS issue would be the largest since at least 2008.
Even with such bright spots, though, the value of delinquent CMBS loans now exceeds $61.5 billion, Trepp says. The percentage of seriously delinquent loans-those that are overdue by 60 days-plus, in foreclosure or non-performing loans-rose 20 bps during December to reach 8.33%, nearly double the 4.68% rate a year ago.
Following the resolution of the Extended Stay portfolio, the lodging sector last month no longer held the dubious distinction of the property type with the highest delinquency rate. That honor fell instead to multifamily, and the apartment sector continued to underperform with a 68-bps increase in the delinquency rate to 16.48% as of December, says Trepp.
Although hotel comes in second at 14.31%, the December tally represented a further 25-bps drop over the month before. The sector had peaked at 19.33% three months ago, prior to the Extended Stay resolution.
The biggest monthly rise in the delinquency rate, though, was incurred by CMBS tied to industrial, which climbed 233 bps to 8.87%. A year ago, industrial's delinquency rate was 3.98% and in November, industrial was still faring best among the five sectors, a distinction now held by office at 6.93%. Retail's 27-bps increase brings the sector to 7.86% delinquency.
By Paul Bubny,

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