In October, the delinquency rate for U.S. commercial real estate loans in CMBS moved up 21 basis points to 9.77 percent reports Trepp. The CMBS delinquency rate is now at its second highest level ever. Only the 9.88 percent reading in July 2011 was higher.
After experiencing a big dip in the delinquency rate in August, the rate has now increased for two straight months.
Trepp reported last month that the tone in the CMBS market had been extremely negative since the beginning of the summer. CMBS investors watched as spreads rose sharply and lenders retrenched from making new loans. Many CMBS investors began to whisper that the impressive rally in CMBS from mid-2010 through May 2011 had taken the market too far, too fast. At the same time, commercial real estate professionals made similar comments about the lofty pricing of trophy properties in the U.S. earlier this year.
This negative sentiment continued for the better part of October. Word of layoffs at origination and trading shops on Wall Street jolted the market further. Spreads continued to race upward–ultimately hitting their highest levels since mid-2010. Researchers at some investment banks offered very bearish predictions for the levels of CMBS issuance in 2012.
With a bevy of 2007-originated five-year loans coming due in 2012, the hope that new CMBS issuance would provide a safety valve of sorts for commercial real estate borrowers seemed more and more remote.
The market was granted a big reprieve late in October when a European bailout program was announced. The news lifted virtually all U.S. equity and debt markets and CMBS was no exception. The announcement helped push CMBS spreads sharply lower and increased hope that the worst was behind the market for the time being.
However, as Greece now pledged to hold a referendum on the bailout program, its future has become murky. Markets have reacted with caution once again as they wait for the European drama to play out. The Numbers:
- Overall U.S. delinquency rate creeps up to 9.77%, up 21 basis points
- Percentage of loans 30+ days delinquent or in foreclosure: October: 9.77% | September: 9.56% | August: 9.52%
- If defeased loans were taken out of the equation, the overall delinquency rate would be 10.24%, up 22 basis points
- Percentage of loans seriously delinquent (60+ days delinquent, in foreclosure, REO or non-performing balloons) is at 9.21%, up 26 basis points.
- One year ago, the overall U.S. delinquency rate was 8.58%
- Six months ago, the overall U.S. delinquency rate was 9.65%
- One year ago, the rate of U.S. loans seriously delinquent was 7.96%
- Six months ago, the rate of U.S. loans seriously delinquent was 8.90%