In April, there was no significant movement in delinquencies specific to any one commercial real estate property type. Current delinquency rates by property type are as follows:
Hotel 18.42%
Multifamily 13.60%
Retail 5.83%
Industrial 4.60%
Office 3.97%
About 30 percent of newly delinquent commercial real estate loans in the U.S. were from commercial mortgage-backed securities loans originated in 2005, according to Fitch Ratings’ February delinquency index. Upcoming maturities for deals originated five years ago contributed to a delinquency rate that stood at 6.29 percent at the end of February.
Office properties had the largest increase in the loan delinquency index, growing by 45 basis points from January to a total rate of 3.5 percent. The hotel industry’s delinquency rate is the greatest at 16.6 percent, while multifamily is at nearly 9 percent, retail at 5.1 percent and industrial at 4.2 percent.
The secondary market for commercial real estate is just beginning to show new life, with the first successful sale of a commercial mortgage-backed securities (CMBS) package in over a year and several new issues in the wings spurred by the strong investor interest on that initial offering. But the positives of renewed activity are tempered by more bad news on the performance of those commercial bond deals made before the freeze.
According to a new report from commercial research provider Trepp, delinquent loans in commercial mortgage securities jumped 85 basis points to 5.65 percent at the end of November. That figure is up from just 4.8 percent a month earlier.
The delinquency rate was highest in the hotel sector, where defaults skyrocketed from 8.67 percent in October to 14.09 percent in November. According to Trepp, the upsurge came from a single Extended Stay Hotel loan. Without it in the mix, the hotel delinquency rate would have increased only 64 basis points, to a little over 9 percent.
Based on Trepp’s analysis, delinquencies on multifamily CMBS loans rose to 8.78 percent in November, up from 7.66 percent the previous month. All other sector’s showed slighter increases. Retail edged up from 4.53 percent to 4.78 percent. Industrial increased from 3.18 percent to 3.33 percent. Office loan delinquencies crept up from 3.08 percent to 3.14 percent.
Trepp says there were $65.2 billion in CMBS loans in special servicing at the end of November, an increase of $8.2 billion, or 14 percent, compared to October. There are very few CMBS related distressed properties in the Los Angeles area. from dsnews.com. image from wsj
2010, 2011 and 2012 will be difficult years with a significant number of commercial mortgages reaching the end of their five-year lifespans, but another set is coming due in 2015, 2016 and 2017.
About $185 billion of the $600 billion in commercial mortgage-backed loans issued between 2005 and 2007 are scheduled to mature between 2010 and 2012. It’s not only CMBS that market watchers should be worried about, because $1 trillion worth of commercial mortgage maturities will occur by 2012, including CMBS, bank loans and insurance company loans.
There are many hungry buyers sitting on the sidelines with cash ready to pounce. A limited number of them have been able to find bargains, but most of coming commercial real estate defaults will occur in Office and Retail, with Industrial markets holding better ground. The Central Los Angeles Industrial market has witnessed very few CMBS defaults at this time.
Of $25.7 billion in distressed assets, the Western U.S. takes $10 billion. However, the good news is that of all commercial property types in the U.S., Industrial has the lowest distressed amount of $700 million out of $25.7 billion, compared the higher amounts of Office, Retail, Apartment (multi-family), Hotel, and Development. Industrial includes warehouse and manufacturing buildings. According to Real Capital Analytics Troubled Asset Radar.
Some of the owners of the distressed or potentially distressed properties are taking preventative measures and seeking bridge loans prior to their primary loans expire. Many bridge loan terms max out at 18 months and have interest rates from 10-18%.