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SF Credit Brief: U.S. CMBS Delinquency Rate Fell To 4.7% In August


Delinquency And Forbearance Both Declined

The U.S. commercial mortgage-backed securities (CMBS) delinquency (DQ) rate decreased 39 basis points (bps) month over month to 4.7% in August (see chart 1). By dollar amount, total DQs fell to $30.3 billion, representing a net decline of $2.6 billion month over month and $19.2 billion year over year. Meanwhile, the overall DQ rate fell 363 bps to 4.7% in August from 8.3% a year earlier (see chart 2).

Chart 1


Chart 2


Forbearance decreased 8 bps to 6.7% in August, which is below the 8.1% peak reached in July and August 2020 (see chart 3). The forbearance rate reflects all loans, which comprise almost equal proportions of loans already in forbearance and loans requesting forbearance that are currently on the master servicer's watchlist for COVID-19-related hardship. Of the loans that were in forbearance as of July 2021, 4.3% are now performing and 0.1% 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 60.7% ($26.6 billion) and 28.0% ($12.3 billion), respectively (see chart 4).

Chart 3


Chart 4


Seriously Delinquent Loan Levels Still High

The share of delinquent loans that are 60-plus-days delinquent (i.e., seriously delinquent loans) was 88.5% as of August (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 41.5%. The $12.6 billion outstanding balance is much higher than the pre-pandemic level. As of July 2020, 120-plus-days delinquent loans comprised less than 5.0% of all delinquent loans (see chart 6).

Chart 5


Chart 6


Special Servicing Declined 23 Bps

The overall special servicing rate dropped 23 bps month over month to 6.6% in August, with lodging falling 54 bps to 15.4% and retail decreasing 39 bps to 13.5% (see chart 7). The overall special servicing rate has been declining since it peaked at 9.5% in September 2020.

The decline in the retail sector's special servicing rate reflects the $94 million UBS loan, which is secured by Dover Mall and Commons, a 553,854 sq. ft. retail property located in Dover, Delaware (see chart 8). The loan is subserviced by Key Bank, and it has been on the servicer's watchlist since August 2021 due to the recent modification and return of the loan from special servicing on July 27, 2021.

In-grace loans decreased 46 bps to 2.2% of the $14.1 billion overall outstanding balance in August. 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 7.4% in August, compared with the 2.4% reported in March 2020. Newly in-grace loans totaled $8.2 billion in August.

Chart 7


Chart 8


Multifamily And Lodging DQ Rates Decreased

By balance, delinquency rates decreased for multifamily (161 bps), lodging (80 bps), and retail (21 bps), and increased for industrial and office (1 bps each) (see chart 8 above).

The largest multifamily loan that came out of DQ in August was the Parkmerced loan, which is backed by a student housing complex located in San Francisco. The loan was reported as delinquent in July due to an error in reporting that was corrected.

There were 75 newly delinquent loans totaling $1.5 billion in August. These included 26 retail loans (totaling $647.7 million), 18 lodging loans ($227.2 million), 14 office loans ($356.9 million), eight multifamily loans ($116.8 million), and one industrial loan ($10.2 million).

Charts 9 and 10 show the year-over-year change in the property type composition for delinquent loans. Lodging fell to 34.6% from 40.9% year over year, while retail increased to 42.1% from 40.3%.

Chart 9


Chart 10


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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