CMBS Delinquency Rates Continue to Fall But Questions Remain About Refinancing

The Trepp CMBS delinquency rate marked its eleventh straight monthly decline in May, posting its biggest drop in three months to 6.16%. That figure represents a decrease of 36 basis points from April’s number.  And the percentage of loans with the special servicer fell to 8.65% in May from 9.02% in April. 

The percentage of loans that were 30 days delinquent was 0.38%, a decrease of 31 basis points from a month prior. Loans in grace period—those that missed May payments but were less than 30 days overdue—accounted for 2.77% of loans, up 52 basis points for May.

Lodging and retail are seeing what Trepp’s Manus Clancy has dubbed “impressive declines” in the percentage of delinquent loans. Hotel alone has seen its rate drop by 10 percentage points—and Clancy predicts that as the economic recovery continues, those numbers should continue to fall.

According to May servicer data, 20.1% of all lodging loans were in special servicing in May, a decrease of more than 1.70% over April. And retail delinquencies tell a similar story with 15.6% of loans with the special servicer, down from 15.9% in April.

But it remains to be seen whether a record number of CRE loans—many of which have been extended or refinanced—will face trouble refinancing as they approach maturity. A recent analysis by Moody’s Analytics’ David Salz and Thomas LaSalvia notes that 12% of lodging loans and 19% of retail loans will mature over the next few years, a figure that’s “not insignificant given some evidence of current troubles,” they say. While lodging may recover more quickly, the distribution of outcomes across the sector will be mixed due to business travel uncertainty. And for retail, effective rent will likely decline 6 to 8% this year, with a full return to 2019 levels not likely until 2026.

Relative to the general population, the loans maturing in the next 24 months show a higher level of long term delinquencies and special servicing (with the exception of lodging loans maturing within 24 months having a lower 121+ delinquency),” Salz and LaSalvia write. “It is not surprising that special servicing is higher given the challenges in refinancing opportunities for these property types. Nevertheless, it is too early to conclude much from the higher delinquency and special servicing percentages for loans maturing in the next 24 months.”

Lender and transaction activity will be important factors to watch in 2021, they say, since capital market stakeholders are looking for “signs of stability” to move forward on deals. But since market stress is expected to continue for the foreseeable future, Salz and LaSalvia say refinancing under current conditions “may prove difficult.”