US – CMBS Delinquency Rate Takes a Breather

For the first time in half a year, the delinquency rate for commercial mortgage-backed securities fell in May, with the rate showing signs of leveling off, according to loan research service Trepp LLC.

At the end of May, 9.6% of all CMBS loans were delinquent, Trepp said, down slightly from 9.65% in April, which had been a record high.  The rate is a useful indicator of the volume of distress percolating in the commercial real estate world. Since early 2008, it has been on an upward march, climbing particularly steeply through 2009 and much of 2010.

Now the downward tick comes as delinquencies appear to be reaching a plateau with commercial real estate prices recovering in many markets. In addition, the firms that are working to resolve the delinquent loans—special servicers, which act on behalf of CMBS bondholders—have been churning through the backlog of distressed mortgages.

At the same time, another CMBS indicator shows that conditions are improving some for investors in these distressed mortgages. In the first quarter, the “loss severity rate”—which measures the average loss borne by distressed loans that are sold or paid off for less than their balance—fell below 40% for the first time since 2009, according to a report issued last month by Standard & Poor’s. The rate had been above 50% throughout 2010.

“We believe that a recovering commercial real estate sector and increased liquidity are providing the underpinnings for better collateral performance and credit metrics,” S&P said.

Source: The Wall Street Journal


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