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Trepp: High CMBS multifamily delinquency rate unusual

Of the five major commercial property types, CMBS multifamily delinquencies are the highest, an aberration that’s not representative of the broader multifamily market, according to analytics firm Trepp.

Just two months after matching its lowest reading in a year, the nation’s overall CMBS delinquency rate reversed course, jumping 12 basis points in April to 9.8%, the second highest rate ever, according to Trepp.

Trepp Managing Director Matthew Anderson tells HousingWire “the delinquency rates for bank multifamily loans have been much lower and have recovered more than all other commercial (non-residential) loans.”

However, the multifamily CMBS delinquency rate remains the worst property type with at rate of 15.18%, Trepp finds:

The problems with CMBS multifamily are threefold, says Trepp Senior Managing Director Manus Clancy, who explains why the high rate is an “anomaly.”

“First, many of the CMBS loans were done at the height of the lending boom in 2006 and 2007 – these loans were destined to underperform,” Clancy says. “Second, the CMBS market was the ‘go-to’ market for borrowers looking to convert rent-stabilized properties in NYC to market rent units. This business model was a failure. About five points of the multifamily delinquency rate in CMBS can be attributed to this factor alone.”

Lastly, Clancy emphasizes, there were some overleveraged or weak borrowers in CMBS who didn’t have any room to maneuver. “Here entire portfolios were brought down by the market upheaval even though, in some cases, the properties were desirable or witnessing decent occupancy.”

The performance of the multifamily housing segment is a mixed bag, according to Fitch Ratings. In Las Vegas, where home prices are down 62% and single-family housing is struggling, the $1.2 billion in CMBS multifamily loans in the area have a delinquency rate of 32.6%. But in California where home prices are also plummeting, the delinquency rate for CMBS multifamily loans is just 4.4%

On the private investment side — banks, thrifts, insurance companies — multifamily in the best performer, Anderson says, with overbuilding being the primary concern. Trepp could not immediately provide numbers to support that.

While single-family housing starts decline, reversing prior gains, multifamily permits are posting strong increases.

Describing the performance of multifamily building as better than most recoveries, Fannie Mae forecasts that the sector will expand 30% in 2012.

jhilley@housingwire.com

@JustinHilley

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