NEW YORK– In May 2023, the overall commercial mortgage-backed securities (CMBS) delinquency rate shot up 53 basis points to 3.62%, the highest level since March 2022, according to new data from commercial real estate data and analysis firm Trepp.
“MBS investors and market participants have been waiting for months for delinquencies to spike,” Trepp stated in its new report. “Since last summer, higher rates and lagging office demand have led to expectations of substantially higher delinquency levels. It appears that the tipping point came (in May).”
CRE and Credit Unions
While commercial loans are expected to hit the bottom lines of banks, NCUA Chairman Todd Harper said during an interview with CUToday.info he does not expect credit unions to be similarly affected, given that most “commercial loans” in CU portfolios are actually one-to-four family homes.
As many markets across the country are experiencing as a result of the shift of more people working from home, the increase in May 2023 was driven by a huge spike in office delinquencies, Trepp said.
“The office rate jumped 125 basis points to 4.02%. The last time the office rate was above 4% was 2018,” Trepp reported. “At that time, many loans originated in 2006 and 2007 were still outstanding accounting for the high level. That is not the case currently.
‘Heavily Watched’
“Office has been the most heavily watched part of the market as firms look to aggressively reduce space,” the analysis continued. “Sublease space is at or near record highs in many markets as demand from big tech firms has eroded sharply. In addition, many companies are letting leases expire or are renewing with smaller footprints.”
Trepp said that since the advent of its CMBS Delinquency Rate analysis, it has not included delinquent loans that are past their maturity date but are current in interest payments.
“That is because many of those loans are ones for which borrowers are in the process of finalizing extension options that are embedded in the loan,” Trepp said. “However, now borrowers are more and more foregoing those extension options. If Trepp included loans that are beyond their maturity date but current on interest, the delinquency rate would be 4.99%. For CMBS 2.0+ loans, the rate would be 4.80%.”
Additional Data Points
Additional data points in its latest analysis include:
- The percentage of loans in the 30 days delinquent bucket is 0.24% – up four basis points for the month.
- While the overall U.S. CMBS delinquency rate jumped to 3.62% up 53 basis points for the month, Trepp said the all-time high on this basis was 10.34% registered in July 2012. The COVID-19 high was 10.32% in June 2020.)
- Year over year, the overall U.S. CMBS delinquency rate is up 48 basis points.
- The percentage of loans that are seriously delinquent (60+ days delinquent, in foreclosure, REO, or non-performing balloons) is now 3.38%, up 49 basis points for the month.
- If defeased loans were taken out of the equation, the overall 30-day delinquency rate would be 3.84%, up 58 basis points from April.
- One year ago, the U.S. CMBS delinquency rate was 3.14%. Six months ago, the U.S. CMBS delinquency rate was 2.99%.
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