CMBS Delinquencies Reaching All Time Highs

Despite leveling off in July, the commercial mortgage-backed securities (CMBS) delinquency rate increased for the fifth consecutive month, according to data from commercial real estate consulting firm Trepp LLC.

The delinquency rate for U.S. commercial real estate loans in CMBS climbed up 18 basis points in July to 10.36 percent. That puts the delinquency level at an all-time high, up 97 basis points since February 2012. June ended with a delinquency rate of 10.16.

"The biggest issue has been that the worst years for underwriting in CMBS were 2006 and 2007 when, during that time frame, five-year loans were made," said Manus Clancy, senior managing director at Trepp, in an interview with REIT.com. "Only 20 percent have been able to pay off their loans, and the market is digesting the fact that these guys can't get new money, or are either in default or trying to work it out."

The retail loan segment was the only major property type that witnessed its delinquency rate improve. Trepp said lodging, office, residential and industrial loans all saw higher delinquency rates in July.

"Retail just in general held up better than every other segment," Clancy said. "It's counterintuitive to the broader economy, because with the economy kind of wobbling, you would think retail would be weaker than it is."

He said the retail sector benefits from large property owners such as Simon Property Group (NYSE: SPG) and General Growth Properties (NYSE: GGP), adding that the tenants tend to be larger and lease spaces for longer periods of time. Clancy said the office sector benefits from similar dynamics and could be in for a turnaround.

"The office sector has continued to come in second for a long time because it has similar characteristics to retail with longer tenants," he said.

However, what makes the office sector more "worrisome" is that tenants are more willing to move.

Currently, $59.5 billion loans are delinquent, according to the report. That number excluded loans that are past their balloon date but are current in their interest payments. Additional data from the report show that loans resolved with losses stayed flat with June's total, according to the Trepp report, which notes that there were approximately $1.4 billion in loss resolutions in July.