CMBS delinquencies slowing down

by PlanMaestro

More good news in the commercial real estate front. Bloomberg not only mentions the stabilization in bank CRE loans that we discussed a couple of days ago.

U.S. commercial real estate loan delinquencies and default rates continued to march toward new records in the third quarter, but the pace of growth slowed, in yet another sign of a nascent industry recovery.

The default rate on commercial real estate mortgages held by U.S. banks in the third quarter rose by 0.9 percentage point, one of the smallest increases since the downturn began, according to a report released on Monday by Real Capital Analytics.

Commercial real estate mortgage payments that were late by 90 days or more rose to 4.36 percent in the third quarter from 4.27 percent in the prior quarter, according to U.S. Federal Deposit Insurance Corp figures.

but also highlights that commercial mortgage backed securities (CMBS) are also showing signs of stabilization with a sharp slowdown in the increase of delinquencies,

The report was the latest evidence of stabilization in the U.S. commercial real estate market. Credit rating agency Standard & Poor’s said on Monday the delinquency rate for loans behind commercial mortgage-backed securities (CMBS) rose 3 percent in the third quarter, down a jump of 14.1 percent in the second and 30.2 percent in the first. A loan is considered delinquent if it is more than 30 days late.

At the end of the third quarter, $46.8 billion in CMBS loans were delinquent, or 8.32 percent, S&P said. The National Association of Realtors said that overall vacancy rates across most types of commercial real estate likely have peaked and may show small improvement by year end.

I am not going to deny that delinquencies of 8.32% are high but they are not the end of the world either. Especially considering that their securitization isolated commercial banks from the worse CRE lending. Not only that, but these securities that were considered toxic waste are now being targeted for growth with their better underwriting conditions as we mentioned in a previous post.