CREFC's February 2022 Monthly
CMBS Loan Performance Report
March 21, 2022
CRE Finance Council has released a report on CMBS loan performance for the month of February.*
Key takeaways:
DELINQUENCY RATE DROPS BELOW 4%; ANOTHER POST-PANDEMIC LOW
Following a large decrease in January, the CMBS delinquency rate reported another meaningful decline, dropping 33 basis points (bps) to 3.9% in February
- The February reading is the first time the delinquency rate has dropped below 4% and the lowest since April 2020 (2.1%) – before the impacts of the pandemic were first reflected in the data
- February’s delinquency rate is 644 bps lower from its peak of 10.3% in June 2020, but still remains elevated relative to the pre-pandemic level of 2.2% at year-end 2019
The pandemic-related CMBS delinquency peak of 10.3% exceeded that reached during the Global Financial Crisis (GFC) of 9.8%. Yet, pandemic delinquencies were quick to reverse course.
- The decline to the current 3.9% delinquency rate took only 20 months whereas the GFC delinquency rate too nearly six years to match the same decline
REO asset volume has been significantly more muted during the pandemic than the GFC. The REO rate amidst the pandemic has remained consistent at ~1%, while the rate following the GFC quickly surpassed 2% (and peaked at 3.6%).
- The sharp declines in delinquent and special serviced loans suggest that pandemic related REO volumes will prove substantially lower than in the GFC
STRONG OVERALL TRENDS IN CMBS LOAN PERFORMANCE
- Overall performance for conduit and SASB CMBS is sound with delinquency rates at 5.3% and 1.4%, respectively
- The same applies for ‘in-foreclosure’ loans and REO assets at a combined 2.8% for conduit and 0.7% for SASB
- Total specially serviced loan rates are also low at 7.5% for conduit and 3.7% for SASB
- The outperformance of SASB CMBS is due primarily to the institutional-quality assets and sponsorship associated with larger loans and the heightened capital liquidity of the borrowers and thus their ability to withstand the cash-flow deficits caused by the pandemic
SPECIAL SERVICING RATE NOTCHES ANOTHER LARGE DECLINE
- Continued Decline in Special Servicing Volume: Loans in special servicing fell 25 bps to 6.1% in February, the 17th consecutive monthly decline, and down from a high of 10.5% in September 2020
- Hotel and retail led the way with decreases of 71 and 37 bps, respectively – the special servicing rate for both hotel and retail now stands at 11.9%
- Currently ~$33 billion of special-serviced loans vs. ~$14 billion at year-end 2019
- De-Minimis In-Foreclosure and REO Loans: The high percentage of loans in special servicing two years into the pandemic suggest in-foreclosure and REO rates should be much higher; yet, they remain low at 1.1% and 0.9%, respectively
- Low rates reflect forbearances by special servicers; forborne loan data reported in watchlist data, special servicer comments
- According to BofA Global Research, as of February 2022:
- 485 loans across 290 conduit deals had delinquency statuses of in-foreclosure or REO
- 136 loans across 106 conduit transactions mentioned foreclosure/dual tracking in the servicer commentary
- 42% backed by retail properties and 29% hotel properties; 2014 and 2015 vintage loans most impacted
- Servicers do not expect rates to spike even as most, if not all, moratoriums have been lifted. Servicers continued to report loans as ‘in-foreclosure’ if that was a strategy they planned to pursue once the moratoriums had ceased.
- Yet, while liquidations currently remain very low, we anticipate these levels to rise as servicers work through the inventory of loans with foreclosure or REO statuses
*Source: Trepp. CMBS data in this report reflect a total outstanding balance of $624.6 billion: 62.8% ($392.2B) conduit CMBS, 37.2% ($232.4B) single-asset/single-borrower (SASB) CMBS.
Click here to download the full report. Contact Raj Aidasani for more information on CMBS loan performance