- U.S. CMBS overall delinquency rate declined for the 12th consecutive month in June with a 13 bps month-over-month decrease to 5.2%.
- Seriously delinquent loans (60-plus-days delinquent) remained high at 90.3% of all delinquent loans, while loans that are in forbearance or have requested forbearance relief decreased to 7.2% from the 8.1% peak reached in mid-2020.
- By balance, delinquency rates decreased for lodging (66 bps), industrial (13 bps), and office (8 bps), while multifamily and retail increased (8 bps each).).
Delinquency And Forbearance Both Declined
The U.S. commercial mortgage-backed securities (CMBS) delinquency (DQ) rate continued to fall in June 2021, while the forbearance rate declined slightly. The overall DQ rate for U.S. CMBS transactions decreased 13 basis points (bps) month over month to 5.2% in June (see chart 1). By dollar amount, total DQs decreased a net $0.4 billion month over month and $20.7 billion year over year to $33.1 billion.
The overall DQ rate decreased 388 bps to 5.2% in June from 9.0% a year earlier (see chart 2).
Forbearance decreased 4 bps to 7.2% in June, which is lower than the 8.1% peak reached in July and August 2020 (see chart 3). The forbearance rate reflects almost equal proportions of loans that are already in forbearance and loans that are requesting forbearance and are currently on the master servicer's watchlist for COVID-19-related hardship. Of the loans that were in forbearance as of May 2021, 3.2% are now performing, while 0.6% became delinquent.
The lodging and retail sectors continued to represent the largest proportion of loans in forbearance and loans currently requesting forbearance relief due to the COVID-19 pandemic, at 60.9% ($28.3 billion) and 28.5% ($13.2 billion), respectively (see chart 4).
Seriously Delinquent Loan Levels Still High
The share of delinquent loans that are 60-plus-days delinquent (i.e., seriously delinquent) is 90.3% as of June (see chart 5). Further, loans that are 120-plus-days delinquent (those reported in the CRE Financial Council investor reporting package with a loan code status of '6') continued to represent the largest portion of delinquent loans, at 42.7%. The outstanding balance of $14.1 billion is much higher than the pre-pandemic levels. As of July 2020, 120-plus-days delinquent loans comprised less than 5.0% of all delinquent loans (see chart 6).
Special Servicing Declined 51 Bps
The overall special servicing rate declined 51 bps month over month to 7.0% in June (see chart 7). The special servicing rate has been declining since it peaked at 9.5% in September 2020. The retail and lodging sectors' special servicing rates also declined month over month, decreasing 121 bps to 13.9% and 226 bps to 16.7%, respectively.
Noteworthy lodging special servicing resolutions in June include the Atrium and Ashford Portfolios. The Atrium Portfolio is a $600 million loan secured by 29 full-service, limited-service, and extended stay hospitality properties, comprising 7,015 keys located across 16 states. The resolution of Ashford Portfolio is a $395 million loan secured by eight full-service hotels totaling 1,964 keys across six states. The retail special servicing rate decline primarily reflects the resolution of Palisades Center Mall, a $388.5 million loan secured by 1.8 million sq. ft. retail property located in West Nyack, N.Y. The loan was modified to include a six-month principal and interest forbearance and a maturity extension through October 2022.
Meanwhile, in-grace loans decreased 80 bps to 1.8% (or $11.7 billion) of the overall outstanding balance in June. This is in line with the pre-pandemic levels observed at the start of 2020. However, the grace-to-DQ conversion rate (i.e., the proportion of outstanding balance that moved from in-grace into DQ month over month) remained elevated at 10.6% in June, compared with the 2.4% reported in March 2020. Newly in-grace loans totaled $5.6 billion in June.
By balance, DQ rates decreased for lodging (66 bps), industrial (13 bps), office (8 bps), while multifamily and retail increased (8 bps) (see chart 8).
Newly Delinquent Loans Totaled $2.3 Billion
There were 90 newly delinquent loans totaling $2.3 billion in June. These included 46 retail loans ($1.5 billion), 22 lodging loans ($334.9 million), six office loans ($223.1 million), eight multifamily loans ($91.9 million), and one industrial loan ($13.2 million).
The largest loan that went delinquent in June was Ingram Park Mall, a regional mall located in San Antonio, Texas, with an outstanding balance of $120 million. The loan was transferred to special servicing on April 21, 2021, for imminent default because the borrower indicated that it had not obtained financing in anticipation of the June 1, 2021, maturity. The loan was placed on the master servicers watchlist in March 2021. Based on the borrower's response dated March 31, 2021, it was attempting to refinance the loan and simultaneously extend the loan maturity from three to five years. The DSCR was 1.55x as of Dec. 31, 2021, the occupancy was at 92.74% as of Jan. 12, 2021, and the property was rated "fair" as of the site inspection dated Jan. 19, 2021.
Charts 9 and 10 show the year-over-year change in the property type composition for delinquent loans. The retail and lodging DQ rate composition declined slightly year over year, with lodging decreasing to 37.6% from 38.5% and retail falling to 40.7% from 43.8%.
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:||Ambika Garg, Chicago + 1 (312) 233 7034;|
|Secondary Contacts:||Tamara A Hoffman, New York + 1 (212) 438 3365;|
|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;|
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