CMBS Delinquencies in the “Calm Before the Storm”

Hotel delinquencies fall to 12.28%

CMBS delinquencies dropped sharply in November after rising the previous two months, but it may be the last good news for a while as researchers expect that as 2007-vintage loans mature further delinquencies will set in.

Two outlets that specialize in monitoring CMBS delinquencies, Trepp and Morningstar, each issued reports last week with Trepp’s report updated through November and Morningstar’s review covering through the end of October. Through October, Trepp reported the CMBS delinquency rate at 9.77%—the second highest point on record trailing only July’s figure of 9.88%. Morningstar, meanwhile, said the delinquency rate had hit 8.35% in October. Both firms measured rates rising in September and October after having fallen in August. In addition, Trepp’s latest report showed that the delinquency rate dropped 26 basis points to 9.51% in November.

Through October, Morningstar reported the unpaid balance for specially serviced CMBS under review increased on a net basis by $974 million, up to $85.35 billion from $84.37 billion in September 2011. Newly transferred specially-serviced loans totaled 176 with an unpaid balance of $3.88 billion in October. The percentage of loans in special servicing in October by unpaid balance grew to 11.63% from 11.46% a month prior.

The 26-basis point decline in November was the second biggest drop in 2011, according to Trepp, surpassed only by August’s 36-point decline. The rate has now fallen in four of eleven months in 2011, according to the firm. The percentage of loans seriously delinquent (60+ days delinquent, in foreclosure, REO, or non-performing balloons) is now 8.88%, down 33 basis points for the month.

Going forward, however, Trepp sees trouble.

According to its report, “The day of reckoning is here for the class of 2007 originated loans as the five-year balloon loans that were made at the height of the commercial real estate bubble have begun to mature. The 2007 vintage was the weakest in terms of underwriting standards and it is widely expected that many of these loans will have trouble paying off at their balloon date. In total, about $15.5 billion of these loans will come due in 2012, with the majority reaching their balloon dates over the next six months.”

Read the rest of the story at National Real Estate Investor.

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