Delinquencies for commercial mortgage-backed securities loans will peak between 8.25% and 8.75% by the end of the third quarter, near the highest levels from the last financial crisis, Fitch Ratings said.
The delinquency rate has been steadily falling and stood at 1.31% as of March, but will now start to rise, Fitch analysts wrote in an April 9 note. Their analysis assumes declining new issuance volume in the second and third quarters, fewer maturing loans and fewer resolutions by special servicers.
Delinquencies peaked at 9.01% in the Great Recession, in July 2011.
The agency expects delinquency rates to be highest in sectors most affected by the coronavirus pandemic, with hotel delinquencies rising to roughly 30.00% from 1.44% as of March, and retail delinquencies rising to roughly 20.00% from 3.51% in March. Both figures would surpass prior peaks of 21.31% and 7.67%, respectively.
Fitch also expects multifamily delinquencies to increase, especially in the student housing sector and in properties with high concentrations of hourly wage employees, service employees, oil and gas workers, and workers who interact frequently with the public. The agency assumes bad debt expense at such properties will increase to the level of Fitch's unemployment assumption, at or above 10%.
Delinquencies may be delayed or understated as borrowers are granted short-term forbearances, Fitch said.
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