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SF Credit Brief: Overall U.S. CMBS Delinquency Rate Ends The Year At A Lower 7.0%, But Still Up By Almost 550 Bps Compared To Jan. 2020


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SF Credit Brief: Overall U.S. CMBS Delinquency Rate Ends The Year At A Lower 7.0%, But Still Up By Almost 550 Bps Compared To Jan. 2020


Delinquencies Continue Downward Trajectory, But Forbearance Rate Rose 32 Bps

The overall delinquency (DQ) rate for U.S. commercial mortgage-backed securities (CMBS) transactions decreased by 34 bps month over month to 7.0% in December 2020 (see chart 1). By dollar amount, total DQs decreased $2.0 billion month over month and increased $32.4 billion year over year, to $42.2 billion. Since January 2020, the overall DQ rate has increased by 546 bps from 1.5%. The average year-over-year change in the DQ rate peaked in June 2020, but has since steadily declined (see chart 2).

Chart 1


Chart 2


The year ended with a forbearance rate of 7.5%, which is calculated as the number of loans on the watch list (WL) that are requesting a forbearance modification (54.1%) or the loans in forbearance via a loan modification (45.9%). Compared to November 2020, by balance, 9.9% of those loans that were considered in forbearance last month are no longer in forbearance, and 3.2% of those are now delinquent, while the remainder (6.7%) have returned to current status (see chart 3.) The forbearance rate was at its peak in July and August 2020, at a little over 8%.

Based on these reporting updates, the retail and lodging sectors continue to comprise the vast majority of loans in forbearance or currently requesting forbearance relief due to the pandemic. Lodging and retail loans account for 55.5% ($25.1 billion) and 30.9% ($14.0 billion), respectively, of all loans currently in or requesting forbearance (see chart 4).

Of note, currently, per the CREFC investor reporting package update 8.1, loans that are currently requesting forbearance or are in forbearance are tagged with WL code "6A" to better identify those currently under forbearance due to the COVID-19 pandemic or requesting relief. We are also tracking loans that have reported receiving a forbearance modification, along with the loans that are on the WL due to disruptions in cash flows because of COVID-19-related shutdowns.

Chart 3


Chart 4


Loans Continue To Transition To Seriously Delinquent Status

Although the overall DQ rate is down, the share of delinquent loans that are delinquent 60-plus days (i.e., seriously delinquent) is 87.5%, as grace period levels sharply receded over the past couple of months. Even though a percentage of 30-day delinquent loans were resolved and made current in the prior month, a growing share have transitioned to becoming seriously delinquent. Furthermore, the loans that are 120-plus-days delinquent (reported in the CREFC investor reporting package with a status of loan code of "6") continued to increase sharply, rising to almost $18 billion; this now accounts for almost 42.4% of all delinquent loans. When we started tracking this bucket separately in July 2020, this comprised of less than 5% of all delinquent loans; by September 2020, over 30% of all delinquent loans were seriously delinquent.

Chart 5 shows the DQ balance by status. Chart 6 shows a breakdown of the July to December 2020 DQs by status.

Chart 5


Chart 6


Special Servicing Rate Declined By 33 Bps, Falling Below 9% For The First Time In Five months

Chart 7 illustrates the special servicing (SS) rate overlaid with the DQ and grace rates. The December 2020 SS rate is 8.9%, which is 33 bps lower than the 9.2% in November 2020. The S&P Global Ratings' SS rate reached its peak in Sept. 2020 at 9.53%, but has steadily declined in the last quarter. The lodging sector SS rate experienced the largest month-over-month decrease, by 140 bps, to 22.7% in December 2020 from 24.09% in November 2020.

Month over month, the DQ rate decreased by 109 bps to 44.12% for CMBS 1.0 transactions and decreased by 28 bps to 6.24% for CMBS 2.0 transactions. In addition, the delinquency rates for the major property types, retail, multifamily and office decreased by 135 bps, 10 bp, and 9 bps, respectively. Meanwhile, the delinquency rates for lodging and industrial increased by 10 bps and remains constant, respectively (see chart 8).

Chart 7


Chart 8


Newly Delinquent Loans Total $3.47 Billion In December

The grace period levels remained constant at 2.6% in December; though notably higher than at the start of the year, the grace rate has declined considerably from its peak in April 2020 of 7.6%. The December 2020 in-grace loans balance is $16.0 billion, of which $10.3 billion are loans that are newly in grace status this month. We also observed that previously in-grace loans are now delinquent at a 15.6% grace-to-DQ conversion rate (i.e., the proportion of outstanding balance that were in grace in the previous month that went into delinquency this month), and that about 36.3% of the loans were removed from grace status.

The property type composition of delinquent loans has changed year over year. Lodging increased its share by 30.7%, while office decreased by 16.8% and retail by 11.9% (see charts 9 and 10). Lodging is the most significant property type in terms of delinquency rate composition, at 41.2% in December 2020, compared with 10.5% in December 2019. At the end of 2019 retail was the most significant property type in terms of delinquency rate composition 51.2% and has moved into the second largest proportion this year, at 39.3%.

Chart 9


Chart 10


There were 137 newly delinquent loans (totaling $3.5 billion) in December, including 61 lodging loans ($1.4 billion), 38 retail loans ($1.1 billion), eight office loans ($410.8 million), 12 multifamily loans ($198.7 million), and four industrial loans ($34. 5 million).

S&P Global Ratings believes there remains a high degree of uncertainty about the evolution of the coronavirus pandemic. While the early approval of a number of vaccines is a positive development, countries' approval of vaccines is merely the first step toward a return to social and economic normality; equally critical is the widespread availability of effective immunization, which could come by mid-2021. We use 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 Analyst:Tamara A Hoffman, New York + 1 (212) 438 3365;
Secondary Contacts:Senay Dawit, New York + 1 (212) 438 0132;
Deegant R Pandya, New York + 1 (212) 438 1289;
Research Contacts:James M Manzi, CFA, Washington D.C. + 1 (202) 383 2028;
Tom Schopflocher, New York + 1 (212) 438 6722;

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