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SF Credit Brief: U.S. CMBS Delinquency Rate Declined To 3.6% In November


Delinquency And Forbearance Both Declined

The U.S. commercial mortgage-backed securities (CMBS) delinquency (DQ) rate decreased 18 basis points (bps) month over month to 3.6% in November--a 377 bps decline from 7.3% a year earlier (see chart 1). By dollar amount, total DQs fell to $24.7 billion--a net decline of $0.9 billion month over month and $19.5 billion year over year (see chart 2).

Chart 1


Chart 2


Forbearance decreased 3 bps to 6.1% in November, 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 October 2021, 1.6% 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 60.4% ($25.5 billion) and 28.3% ($12.0 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 92.9% as of November (see chart 5). Further, loans that are 120-plus-days delinquent (those reported in the CRE Finance Council investor reporting package with a loan code status of '6') continued to represent the largest portion (42.0%) of delinquent loans. The $10.4 billion outstanding balance as of November 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 21 Bps

The overall special servicing rate dropped 21 bps month over month to 5.6% in November, with lodging falling 100 bps to 12.6% and retail decreasing 62 bps to 12.3% (see chart 7). The overall special servicing rate has been declining since it peaked at 9.5% in September 2020.

The largest lodging loan that came out of special servicing in November was Fairmont Austin, a $300.0 million loan that transferred to the special servicer in May 2020. The loan was broken into seven components for interest rate calculation purposes. The property was inspected in September 2020, and the inspector reported that it showed very well. In addition, Fairmont's management implemented effective cost-saving strategies and new marketing for group business, despite lingering COVID-19-related issues. The sponsor has taken several steps to return this loan to the master servicer, such as having the 2021 business plan approved, suspending 2021 cash management, collecting legal and special servicing fees, and extending the loan for its first one-year option while funding all shortfalls. Further, the mezzanine lenders returned executed consent agreements acknowledging the extension between the senior lender and borrower. The extension was closed in August 2021.

In-grace loans rose 28 bps to 1.9% of the $12.9 billion overall outstanding balance in November. 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 7.3% in November, compared with the 2.4% reported in March 2020. Newly in-grace loans totaled $8.3 billion in November.

Chart 7


Chart 8


Lodging And Retail DQ Rates Decreased

By balance, delinquency rates decreased for lodging (54 bps), retail (15 bps), multifamily (7 bps), and office (3 bps), and increased for industrial (2 bps) (see chart 8 above).

There were 65 newly delinquent loans totaling $1.0 billion in November. These included 18 retail loans ($334.3 million), 15 lodging loans (totaling $220.4 million), 12 office loans ($277.2 million), 11 multifamily loans ($132.6 million), and two industrial loan ($17 million).

Charts 9 and 10 show the year-over-year change in the property type composition for delinquent loans. Lodging fell to 32.8% from 38.9% year over year, while retail decreased to 40.3% from 41.7%.

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 Contact:James M Manzi, CFA, Washington D.C. + 1 (202) 383 2028;

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