NEW YORK CITY-Despite historically low interest rates, the ability for borrowers to refinance commercial real estate loans remains challenging. According to a new report from Trepp LLC, the percentage of loans paying off on their balloon date remained anchored near its 12-month bottom point after plummeting downward to new lows just two months ago.
In June, only 32.3% of loans reaching their balloon date paid off, making it the second lowest total in 21 months. But in May, the rate plummeted to 29.4%, the lowest level since October 2010—which Manus Clancy, senior managing director at Trepp, says is being driven by the troublesome class of ’07 CMBS loans.
“The fact that a lot of what’s coming due right now is that 2007 originated loans, which are five year loans, about $15 billion of that class came due over the last six months and those things had a very low payoff rate,” Clancy says. “In fact, 60% of those things are still outstanding today. I don’t think the lending environment has gotten any worse over the last year, it is just the nature of the types of loans that are trying to pay off now.”
| Month | % by Bal at Mat Date | After 3 Mos. | After 6 Mos. | % by Count at Mat Date |
| Aug-08 | 74.5 | 81.8 | 87.7 | 69.5 |
| Sep-08 | 80.0 | 88.7 | 89.3 | 76.3 |
| Oct-08 | 73.8 | 83.7 | 92.1 | 67.1 |
| Nov-08 | 38.7 | 65.7 | 68.5 | 48.1 |
| Dec-08 | 84.9 | 94.9 | 95.7 | 53.1 |
| Jan-09 | 48.2 | 73.1 | 78.9 | 68.2 |
| Feb-09 | 41.8 | 50.7 | 59.2 | 56.7 |
| Mar-09 | 14.9 | 17.5 | 21.5 | 54.9 |
| Apr-09 | 27.3 | 42.4 | 47.5 | 40.8 |
| May-09 | 28.6 | 34.2 | 36.4 | 63.0 |
| Jun-09 | 28.3 | 40.8 | 46.2 | 49.2 |
| Jul-09 | 26.6 | 33.8 | 44.7 | 35.1 |
| Aug-09 | 41.8 | 50.8 | 61.8 | 56.7 |
| Sep-09 | 35.4 | 46.7 | 52.5 | 44.4 |
| Oct-09 | 28.8 | 55.3 | 58.1 | 45.2 |
| Nov-09 | 18.7 | 37.7 | 44.8 | 36.3 |
| Dec-09 | 33.4 | 39.8 | 42.3 | 51.4 |
| Jan-10 | 33.9 | 56.1 | 63.1 | 36.9 |
| Feb-10 | 22.3 | 33.4 | 39.4 | 38.6 |
| Mar-10 | 44.9 | 58.9 | 61.1 | 48.5 |
| Apr-10 | 20.5 | 31.2 | 38.4 | 38.5 |
| May-10 | 29.5 | 52.7 | 55.3 | 37.1 |
| Jun-10 | 38.7 | 51.5 | 53.7 | 47.7 |
| Jul-10 | 49.9 | 64.6 | 70.0 | 39.5 |
| Aug-10 | 34.7 | 46.0 | 51.1 | 46.2 |
| Sep-10 | 23.7 | 58.0 | 59.2 | 48.4 |
| Oct-10 | 22.3 | 32.0 | 36.7 | 50.8 |
| Nov-10 | 36.8 | 56.3 | 58.9 | 40.5 |
| Dec-10 | 51.5 | 65.7 | 69.7 | 46.3 |
| Jan-11 | 38.7 | 53.3 | 59.8 | 49.4 |
| Feb-11 | 38.4 | 52.9 | 64.7 | 47.2 |
| Mar-11 | 55.5 | 69.5 | 80.9 | 52.2 |
| Apr-11 | 47.5 | 66.4 | 73.6 | 53.8 |
| May-11 | 34.9 | 62.1 | 74.2 | 48.1 |
| Jun-11 | 42.4 | 55.9 | 70.3 | 56.1 |
| Jul-11 | 39.6 | 50.8 | 63.3 | 49.4 |
| Aug-11 | 39.5 | 67.6 | 72.0 | 43.1 |
| Sep-11 | 64.4 | 73.5 | 78.5 | 55.6 |
| Oct-11 | 41.8 | 48.1 | 68.5 | 44.2 |
| Nov-11 | 47.1 | 57.6 | 60.7 | 50.0 |
| Dec-11 | 37.5 | 44.9 | 51.2 | 51.2 |
| Jan-12 | 40.8 | 49.9 | 51.4 | 51.3 |
| Feb-12 | 61.6 | 73.7 | NA | 64.9 |
| Mar-12 | 36.4 | 51.7 | NA | 43.1 |
| Apr-12 | 42.2 | 52.1 | NA | 56.8 |
| May-12 | 29.4 | NA | NA | 57.3 |
| Jun-12 | 32.3 | NA | NA | 55.2 |
According to the chart above, the June total of 32.4% was well under the 12-month average of 42.7%. The number, which only counts fixed-rate, US conduit loans, sums the averages of each month and divides by 12. By comparison, prior to 2008, the pay-off percentages were typically well north of 70%. Since the beginning of 2009, however, there have only been four months where more than half of the balance of the loans reaching their balloon date actually paid off, Trepp says.
“In 2009, we were seeing readings in the 20s, so in March, April, May, June and July, it was right on the heels of the beginning of the crisis, if you will,” Clancy says. “Nobody was lending in late 2008, so we are not really surprised to have seen those numbers. But by 2011, we were starting to see numbers creep up in the high 40s and the low 50s consistently, so this represents a setback from some of those loftier numbers we saw in 2008 and 2011.”
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As a whole, the pay off report ties strongly together with the rising CMBS delinquency rate. In May, GlobeSt.com reported delinquency rate cracked over 10% up 24 basis points from (9.8%) and a whopping 67 basis points since February (9.37%).
“If you can’t refinance, you are going to be delinquent as well,” Clancy says. “They go very much hand-in-hand. We think we are going to see a leveling off of the delinquency rate in the second half of the year because the class of 2007 loans were so heavily distorted toward the front half of the year, meaning, of all the loans that were made in 2007, well over half were made in the first half of the year, about 80%. So we think in the second half of 2012, we will see a leveling off of the delinquency rate.”
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