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SF Credit Brief: U.S. CMBS Delinquency Rate Experiences Another Steep Rise; However, A Decline In Grace Status May Flatten The Future Delinquency Curve


Overall Delinquency Rate Rose To 9.04%; 55.8% Of Previously Grace Balance Goes Delinquent

The overall delinquency (DQ) rate for U.S. commercial mortgage-backed securities (CMBS) transactions increased by 287 bps month over month to 9.04% in June. As foreshadowed by the grace period rate last month, the DQ rate increased for a second consecutive month, to again, the highest number seen since we started tracking the comprehensive CMBS portfolio DQ in January 2017 (see chart 1). By dollar amount, total DQ increased $17.13 billion month over month and $41.74 billion year over year, to $53.8 billion. Since January 2017, the overall DQ rate has increased by 473 bps. The average year-over-year change in the DQ rate also rose for a second consecutive month. (see chart 2).

Chart 1


Chart 2


The looming concern highlighted over the last couple of months regarding the spiked levels of loans in their grace period, continued to contribute to the increase in the DQ rate for the month of June. Despite the grace period levels receding to 3.97% in June 2020, the risks of increases in the DQ rates still persists; however, the rise might not be as dramatic as we observed in previous months. Of the $23.65 billion of total grace loans balance in June, $15.30 billion represents the new transfers to grace this month. We also observed that more than half of the previous grace loans are now delinquent with a 55.8% grace-to-DQ conversion rate (i.e., the proportion of outstanding balance that was in grace in the previous month and went into delinquency this month) (see chart 4).

Chart 3


Chart 4


Special Servicing Rate Up By 182 bps; Watchlist Proportion Increases

Chart 5 illustrates the special servicing (SS) rate overlaid with the DQ and grace rates. The June 2020 SS rate is 7.42% -182 bps higher than the May 2020 number of 5.60%. The retail and lodging sectors experienced the highest month-over-month increases. The retail SS rate increased to 13.64% in June from 8.96% in May. Lodging also continues its steep hike, with an increase to 19.11% in June from 15.65% in May. As a result of the pandemic impact, forbearance relief requests will continue to remain elevated and may result in further transfers to the special servicer, yielding a continued rise for the SS transfer rate over the next several months.

Currently, per the CREFC investor reporting package update 8.1, loans that are in forbearance are tagged with a watchlist code "6A" to better identify those currently under forbearance due to the COVID-19 pandemic. Based on these reporting updates, the retail and lodging sectors also constitute the largest proportion of loans on the watchlist due to the pandemic (see chart 6). The $19.22 billion and $19.58 billion of retail and lodging loans representing 14.0% and 21.1% of the overall retail and lodging, respectively, are now part of the servicer watchlist due to the COVID-19 pandemic.

Chart 5


Chart 6


Newly Delinquent Loans Total $21.7 Billion In June

Month over month, the DQ rate increased 576 bps to 40.37% for CMBS 1.0 transactions and 282 bps to 8.16% for CMBS 2.0 transactions. To analyze the DQ rate by vintage, we looked at the rolling-12-month average in order to smooth out the sharp fluctuations. We observed that DQ rates are trending upward for all vintages in June (see chart 7). In addition, the delinquency rate also increased for all major property types, except industrial, which showed a 17 bps decline. Lodging and retail continue to show the largest increases at 480 bps and 789 bps, respectively, while multifamily (2 bps) and office(21 bps) saw marginal increases (see chart 8). Another noteworthy mention is that properties tracked as mixed-use and other also saw a substantial increase of 425 and 367 bps, respectively, compared to their May 2020 DQ number

Chart 7


Chart 8


The property type composition of delinquent loans has changed year over year: Lodging showed an increase (26.0% year over year), while office showed the largest decline (22.9%) (see charts 9 and 10). Retail stands as the largest property type for delinquency rate composition, at 43.8% in June 2020, compared with 44.0% in June 2019.

Chart 9


Chart 10


There were 753 newly delinquent loans (totaling $21.7 billion) in June, including 309 lodging loans ($7.7 billion), 320 retail loans ($11.0 billion), 27 office loans ($547.6 million), 20 multifamily loans ($312.8 million), and four industrial loans ($28 million).

S&P Global Ratings acknowledges a high degree of uncertainty about the evolution of the coronavirus pandemic. The consensus among health experts is that the pandemic may now be at, or near, its peak in some regions, but will remain a threat until a vaccine or effective treatment is widely available, which may not occur until the second half of 2021. We are using this assumption in assessing the economic and credit implications associated with the pandemic (see our research here: As the situation evolves, we will update our assumptions and estimates accordingly.

The authors would like to thank Bushra Dawawala for her research contributions to this report.

This report does not constitute a rating action.

Primary Credit Analysts:Ambika Garg, Chicago + 1 (312) 233 7034;
Tamara A Hoffman, New York (1) 212-438-3365;
Secondary Contact:Deegant R Pandya, New York (1) 212-438-1289;
Research Contact:James M Manzi, CFA, Washington D.C. (1) 434-529-2858;
Tom Schopflocher, New York (1) 212-438-6722;

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