CMBS Delinquency Rate Recedes Sharply in August, Second Largest Decline Since Credit Crisis Began

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According to Trepp, the CMBS market has rebounded smartly in August, after a dismal July delinquency reading.

The delinquency rate for U.S. commercial real estate loans in CMBS fell 36 basis points in August to 9.52%.  This is the second largest drop since the beginning of the credit crisis in 2008 and the third time the rate has dropped in the past four months.

Trepp reports that after a streak of bad readings that lasted from late spring through summer, the CMBS market was thirsting for some positive news.  Between lenders pulling back, a failed deal closing, and concerns that European banks and the U.S. economy were headed for the rocks, CMBS investors had turned very bearish on CMBS' prospects.

The drop in CMBS delinquencies in August appears to be the first piece of good news for the market in a while.

As with July, a big part of the change in the rate was the result of the way some special servicers have been reporting data.  In July, special servicers started to flag many "dual-tracked loans," those in which the special servicer was pursing both a modification and a foreclosure strategy, as having a workout code of "in foreclosure."  This caused the rate to spike sharply in July.  However, what the Special Servicers giveth, the Special Servicers taketh away. In August, the special servicer walked backed many of these reclassifications, putting some downward pressure on the rate.

The percentage of loans seriously delinquent (60+ days in foreclosure, REO, or non-performing balloons) is now 8.79%.  By that measure, the rate was down 35 basis points.

Trepp Report Numbers:

• Overall U.S. delinquency rate falls to 9.52%, a decrease     of 36 basis points

• Percentage of loans 30+ days delinquent or in foreclosure:  August 11:  9.52% --- July 11:  9.88% ---June 11:  9.37%

• If defeased loans were taken out of the equation, the overall delinquency rate would be 9.98%, down 40 basis points from July 2011

• Percentage of loans     seriously delinquent (60+ days delinquent, in foreclosure, REO or non-performing balloons) is at 8.79%, down 35 basis points from July 2011

Historical Perspective from Trepp

• One year ago, the overall U.S. delinquency rate was 8.92%

• Six months ago, the overall U.S. delinquency rate was 9.39%

• One year ago, the rate of U.S. loans seriously delinquent was 8.15%

• Six months ago, the rate of U.S. loans seriously delinquent was 8.75%

• Hotel delinquency rate down 128 basis points - now 13.76%

• Office delinquency rate remains unchanged at 8.17%

• Industrial delinquency rate jumps 15 basis to 11.24%

• Multifamily delinquency rate down 50 basis points - remains worst major property type at 16.44%

• Retail delinquency rate drops 47 basis points to 7.38% - remains the best performing major property type

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