Delinquent CMBS Triples as Spreads Stabilize

The delinquent unpaid balance for commercial mortgage-backed securities (CMBS) in January increased 326% from a year ago to $45.9bn, according to the research firm Realpoint. Despite the flagging performance, and general uncertainties in the market, Bank of America (BAC)/Merrill Lynch reports that spreads are showing signs of leveling out. Realpoint reviewed more than $797bn in CMBS pools for the January report. The firm calculated a 5.76% delinquency rate for the pools reviewed, up from 5.22% in December. The rate jumped by more than four times the rate in January 2009, when 1.2% of the reviewed loans fell delinquent. June 2007 held the lowest delinquency rate recorded by Realpoint, at 0.2%. After analyzing the trends, Realpoint researchers predict a 6-to-7% delinquency rate through Q110 and could pass 9% in the middle of the year. Foreclosed, repossessed and commercial loans delinquent by 90 or more days increased for the 25th straight month in January – up 28% from the month before and 508% from a year ago. Default risk grows from older CMBS transactions as borrowers became unable to pay off the loans as scheduled. Most collateral properties that usually generate cash flow were not able to refinance the balloon payment at maturity as credit dried up, according to the report. “Declined commercial real estate values and diminished equity in collateral properties may prompt more struggling borrowers with marginal collateral performance to walk away from properties,” researchers wrote. A report from Bank of America Merrill Lynch showed CMBS spreads stabilizing to modestly tighter levels for triple-A paper, during the past week as anxieties eased on large-scale credit issues such as the ability of Greece to pay back its debt: A Moody’s report showed a 4.1% rise in commercial real estate (CRE) prices through December. But Moody’s analysts said it’s uncertain whether CRE prices reached the bottom or just evidence of the “volatility of a market in transition.” While the commercial market searches for answers in the dark, analytics firms could be benefitting more than ever with their answers, just as foreclosure data providers such as RealtyTrac and ForeclosureRadar gained market share through the current credit crisis. Recently, the CMBS researcher Trepp purchased Foresight Analytics for an undisclosed amount. Write to Jon Prior.

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