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Performance Deteriorates on CMBS Due to Maturities

A wave of securitized commercial real estate loans made during better times a decade ago are driving up delinquency.

Thirty-day delinquency on loans contained in commercial mortgage-backed securities finished October at 3.03 percent.

The past-due rate on securitized CRE loans deteriorated compared to one month earlier, when it landed at 2.90 percent.

But an improvement has been made versus the 3.51 percent 30-day rate as of one year earlier.

Those performance statistics were reported by Morningstar Credit Ratings LLC based on the $788 billion in CMBS it rates.

The ratings agency indicated that there was “a
sharp increase in the volume of newly delinquent loans, many of which have defaulted at maturity or prior to maturity.”

Two-thirds of the $2.23 billion in newly delinquent loans were from the 2006 vintage — the peak of CMBS market — as their 10-year terms come to an end.

“Morningstar Credit Ratings, LLC expects the maturity payoff rate will slide further, and pressure the delinquency rate, as many of the loans coming due next year were underwritten in 2007 with optimistic cash flow projections that did not materialize,” the report said.

The most month-over-month deterioration occurred with securitized retail property loans, with the 30-day rate surging 39 basis points from September to 5.77 percent.

A 20-basis-point rise in delinquency on CMBS loans secured by industrial properties left the rate at 4.79 percent as of Oct. 31.

At 3.29 percent, hotel loan delinquency was up 17 BPS from September.

Office building CMBS loans saw 10 BPS in deterioration to 5.79 percent as of last month.

CMBS loans secured by healthcare properties had a 2.57 percent 30-day rate, up 3 BPS from September.

October’s late-payment rate on multifamily loans was 0.55 percent, just 2 BPS higher than the previous month. Performance on apartment-secured loans continues to be the best of any category.

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