articles Ratings /ratings/en/research/articles/210108-sf-credit-brief-overall-u-s-cmbs-delinquency-rate-ends-the-year-at-a-lower-7-0-but-still-up-by-almost-550-11796972 content esgSubNav
Log in to other products

Login to Market Intelligence Platform

 /


Looking for more?

In This List
COMMENTS

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

COMMENTS

As European Hotels Grapple With Prolonged Restrictions, Are Operators And Landlords Sharing The Pain?

FULL

Servicer Evaluation: PGIM Real Estate Loan Services Inc.

COMMENTS

Damage Limitation: Using Enhanced Physical Climate Risk Analytics In The U.S. CMBS Sector

COMMENTS

U.S. Auto Loan ABS Tracker: Full-Year And December 2020 Performance


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

image

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

image

Chart 2

image

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

image

Chart 4

image

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

image

Chart 6

image

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

image

Chart 8

image

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

image

Chart 10

image

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: www.spglobal.com/ratings). 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;
tamara.hoffman@spglobal.com
Secondary Contacts:Senay Dawit, New York + 1 (212) 438 0132;
senay.dawit@spglobal.com
Deegant R Pandya, New York + 1 (212) 438 1289;
deegant.pandya@spglobal.com
Research Contacts:James M Manzi, CFA, Washington D.C. + 1 (202) 383 2028;
james.manzi@spglobal.com
Tom Schopflocher, New York + 1 (212) 438 6722;
tom.schopflocher@spglobal.com

No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.

S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.

S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.

Any Passwords/user IDs issued by S&P to users are single user-dedicated and may ONLY be used by the individual to whom they have been assigned. No sharing of passwords/user IDs and no simultaneous access via the same password/user ID is permitted. To reprint, translate, or use the data or information other than as provided herein, contact S&P Global Ratings, Client Services, 55 Water Street, New York, NY 10041; (1) 212-438-7280 or by e-mail to: research_request@spglobal.com.