Lodging and Retail Reach Highest Delinquency Rates in CMBS History

During the great financial crisis, CMBS distress took a while to play out. CMBS delinquencies and special servicing rates didn’t reach their peak of 10.3% and 13.4% until mid-2012, according to Trepp.

During the current COVID-19 crisis, things have moved a lot faster. Lodging and retail suffered immediately after travel and non-essential shopping stopped in the spring.

Trepp reports that 30-plus day delinquency rates hit a near all-time high of 10.3% by June 2020. Lodging and retail delinquencies moved up to 24.3% and 18.1%, respectively; the highest on record for the CMBS industry.

With tenants locked into long-term contracts, multifamily and office are not facing the same problems. Industrial is surviving the crisis as online shopping grows.

As many landlords struggle, Trepp estimates that about 5.5% of the non-agency CMBS universe—more than $31.2 billion across 800 loans—have been granted forbearances thus far, based on September remittance data. The data conveys that 64% of that forbearance tally is backed by lodging. Retail loans comprise another 28%. Those forbearances have reduced overall delinquency rates starting in July. New 30-plus day delinquencies have been leveling off because of the reopening of parts of the economy and borrowers becoming authorized to tap into reserves to meet debt service needs.

During the great financial crisis, multifamily and lodging faced the most problems, with delinquency rates peaking at 16.9% (20.1% peak for special servicing) and 19.5% (25.6%), respectively, between the second half of 2010 and the first half of 2011.

Since the economy was still churning, despite a slowdown in activity, borrowers held onto troubled properties for much longer before finally deciding to give up ownership during the great financial crisis, according to The Great Financial Crisis vs. COVID-19: The Impact on Commercial Real Estate & CMBS, from Trepp.

Already, some borrowers have decided that they want to hand over their keys in the COVID-19 crisis.

In October, Trepp pinpointed about $3.9 billion in almost 100 outstanding CMBS loan balances, where the borrower has indicated a willingness to turn over the asset to the lender.

Regional malls represent more than one-quarter (26%) of the loans where borrowers could hand the keys back to lenders. Limited-service and full-business service hotels each represented 18.1 of those loans. They were followed by community shopping centers (8.51%) and extended stay hotels (6.38%).