Trepp: US CMBS Delinquency Rate Plunge Deceptive

Posted on July 11, 2011

The US CMBS delinquency rate dropped 23 bps to 9.37% in June, according to data from Trepp, but the decline in these troubled loans is hardly cause for celebration.

Currently valued at $59.3 billion, the delinquent loans fell two consecutive months, the first time such a drop has occurred since 2008, but the drop includes a large number of loans that have been resolved with losses.

“The new growth in delinquent loans is pretty modest, but one shouldn’t read too much into the drop,” Trepp senior managing director Manus Clancy says. “It comes with some footnotes.” Those footnotes include a 28 bp decline that was precipitated by those loans being removed from the numerator in Trepp’s math. The remaining loans saw increased delinquency rates of five basis points.

“It’s mixed,” Clancy says. “The fact that the core went up five basis points–that’s kind of a decently low level.”

Individual property sectors fared differently in Trepp’s findings–vastly so. The office delinquency rate, for example, rose 12 bps in June, while that for lodging plummeted 150 bps to 13.87%. The retail rate fell 12 bps to 7.82% and multifamily fell 23 bps to 16.48%.

The office number was affected by several large loans that went delinquent in June, Clancy says, including a $115-million balance on an office property in Denver, Park Central. And multifamily, performing so well, saw its delinquency rate remain the worst of all the sectors, due to several high profile properties that fared poorly.

“You have a huge block of New York City transitional properties where the borrowers were going to take the properties from rent-controlled or rent-stabilized to market rents and couldn’t do it for one reason or another,” Clancy says. “The market wasn’t there in some cases and in other cases they lost court cases that prevented them from doing it. But right there–Stuy-Town alone makes up about four points of the multifamily delinquency rate. You have $3 billion right there that just kills that particular segment and then there is another $1 billion or more elsewhere in New York that is the same business model that failed.”

By Carl Gaines, Globe St.