CREFC's March 2022 Monthly CMBS Loan Performance Report
April 26, 2022
CRE Finance Council has released a report on CMBS loan performance for the month of March.*
Key takeaways:
ANOTHER DECLINE IN DELINQUENCY RATE; REMAINS BELOW 4%
- Following a large decrease in February, the CMBS delinquency rate reported a smaller downward shift in March, dropping 14 basis points (bps) to 3.7%
- The March reading builds on the prior month which was the first time the delinquency rate dropped below 4% and is the lowest since April 2020 (2.1%) – before the impacts of the pandemic were first reflected in the data
- March’s delinquency rate is 658 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 3.7% delinquency rate took only 21 months whereas the GFC delinquency rate took over 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 5.1% and 1.4%, respectively
- The same applies for ‘in-foreclosure’ loans and REO assets at a combined 2.7% for conduit and 0.7% for SASB
- Total specially serviced loan rates are also low at 7.3% for conduit and 2.9% 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 YET ANOTHER LARGE DECLINE
- Continued Decline in Special Servicing Volume: Loans in special servicing fell 42 bps to 5.7% in March, the 18th consecutive monthly decline, and down from a high of 10.5% in September 2020
- Retail and hotel led the way with decreases of 104 and 100 bps, respectively – the special servicing rate for both retail and hotel now stands at 10.9%
- 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 over two years into the pandemic suggest in-foreclosure and REO rates should be much higher; yet, they remain low at 1.2% 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 March 2022:
- 479 loans across 285 conduit deals had delinquency statuses of in-foreclosure or REO
- 291 loans across 208 conduit transactions mentioned foreclosure/dual tracking in the servicer commentary
- ~40% backed by retail properties and ~30% 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 $633.0 billion: 62.2% ($393.6B) conduit CMBS, 37.8% ($239.4B) single-asset/single-borrower (SASB) CMBS.
Click here to download the full report. Contact Raj Aidasani for more information on CMBS loan performance.