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Despite Uptick in CMBS Delinquencies, Trepp Sees Signs of Stabilization

After two very sharp moves over the previous two months - a huge jump in July and a big dip in August - the delinquency rate of loans held in commercial mortgage-backed securities (CMBS) stabilized in September, according to ""Trepp LLC"":http://www.trepp.com.

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The New York-based research and analytics firm says for at least one month, the reading reverted to its pattern from earlier in the year when modest bumps in the rate were the norm.

Data released by Trepp this week shows that the CMBS delinquency rate inched up 4 basis points between August and September to 9.56 percent. Based on the results of the firm's regular market analysis, the CMBS market has now seen its delinquency rate fall in three of the last five months.

""There is no denying that the tone in the CMBS market has been acutely negative for the past three months,"" Trepp said in its report.

The company's analysts say the secondary market for commercial real estate loans ""has taken a series of body

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blows over that time period,"" with spreads rising sharply, lenders pulling in the reins on new loans, and widespread speculation that the pricing of trophy properties in the U.S. has come too far too fast.

While many of the headlines were sharply pessimistic in tone, not all of the data was negative, Trepp contends.

First, the company points out that a number of trophy property sales were announced in September, indicating that lenders are still willing to do deals for the right assets.

And secondly, Trepp observed that CMBS spreads settled down considerably in the latter part of the month. The company concedes that returns in the CMBS market were ""miserable"" for a third straight month, but Trepp says by the second half of September, CMBS largely stayed within a narrow trading range while U.S. equities bounced all over the map.

And now, the September delinquency numbers are showing some signs of stabilizing, Trepp says.

The percentage of loans seriously delinquent (60-plus days past due, in foreclosure, REO, or non-performing balloons) was not quite as promising, with the rate jumping to 8.95 percent in September, up 16 basis points from August.

Looking at the various property types, overall delinquency rates were up slightly for all groups except hotels.

The hotel rate was down 46 basis points, but Trepp says this was mostly driven by the resolution of the Red Roof Inn loans which were resolved with 50 percent losses and resulted in the removal of two distressed hotel loans from the overall population.

""This ultimately reduced the delinquency rate for hotels, but not in the way that investors would have liked,"" Trepp said.

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.
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