Author: Tucker, Michael
Date published: February 1, 2012
Sixty-plus-day delinquencies for securities backed by commercial real estate loans finished 2011 with a fifth straight month of declines, reported Fitch Ratings, New York.
CMBS late-pays declined in December to 8.37 percent.
Fitch "maintains a stable outlook on approximately 85 percent of its U.S. CMBS portfolio by balance," said the U.S. CMBS Market Trends report. "Most of the remaining bonds are either considered distressed (8 percent) or have a negative outlook (6 percent)."
Office delinquencies, which rose steadily in 2011, rose another 28 basis points in December to 6.84 percent, and will continue to be a problem in 2012, "with delinquencies likely to climb further as longer-term leases continue to roll," said Mary MacNeill, managing director at Fitch.
Fitch reported in December that several weak office markets contributed significantly to the office delinquency figure, including Atlanta; Phoenix; Dallas; Sacramento, California; Detroit; and Las Vegas. Loans backed by central business district (CBD) office properties from the strongest office markets "are virtually absent from the index," said Fitch.
Industrial delinquencies ended 2011 at 10.25 percent, a 9basis-point drop from November but up from 6.24 percent at the end of 2010. Two large loans - the $305 million Schron Portfolio on New York's Long Island and the $250 million Bush Terminal (Brooklyn, New York) loan - contributed to the increase in 2011.
Hotel delinquencies fell more than any other property type, dropping from a peak of 21.31 percent in September 2010 to 12.02 percent at the end of 2011. Several large resolutions, including the note sale of a large portfolio loan in September, led to this trend. Looking ahead, "as hotels continue to stabilize, the downward delinquency trend seems likely to persist," said Fitch.
Multifamily delinquencies also fell. Though this sector retains the highest rate, multifamily delinquencies finished 2011 at 1442 percent, a level not seen since September 2010. Fitch expects apartment fundamentals to continue improving and the multifamily delinquency rate to continue declining.
The December retail delinquency rate rose 26 basis points from November but finished the year at 6.89 percent, down from a peak delinquency rate of 7.20 percent in December 2010. Retail delinquencies have historically been the most stable among the property types, but Fitch said the 2012 rate "may experience increased volatility if new bankruptcies or store closings, such as the recent ones announced by Sears and Kmart, occur with greater-than-expected frequency."
Meanwhile, Trepp LLC, New York City, said the 30-plusday CMBS delinquency rate it tracks "reversed course and moved higher in December."
The overall 30-plus-day delinquency rate in December increased 7 basis points to 9.58 percent. "We view this as the first of a six- to 12-month stretch where the rate could increase by 75 basis points in aggregate," said the rating firm.
Seriously delinquent loans - 60-plus days late, in foreclosure, real estate-owned (REO) or non-performing loans - are up 18 basis points to 9.06 percent. If defeased loans are removed, the overall delinquency rate would be up 8 basis points to 10.03 percent.