According to a report from the analytics firm Trepp
, spiking delinquencies in CMBS could cause bank failures to increase as much as 30% in 2010. The delinquency rate for loans in commercial mortgage-backed securities (CMBS) spiked to 7.61% in March from 6.72% in February
, according to the report.
The February report showed delinquencies beginning to moderate as the rate increased only 23 basis points (bps) from January. The March increase of 89 bps was the highest monthly increase since the summer of 2009. However, the jump received a 40 bps drag from the $3bn Stuyvesant Town loan in Manhattan, which is now considered “in foreclosure.”
But when Trepp analysts subtracted the Stuyvesant Town impact, delinquencies were still up over 49 bps, more than twice the rate of increase in February and still the highest jump from last summer.
Every major property type of commercial real estate suffered higher delinquency rates in March. Lodging, or hotels and inns, held the highest 30-plus day delinquencies at more than 16%. Multifamily followed with a 13% rate and registered the highest jump from 9.8% in February. Retail space had a 6% rate. Industrial properties had a little more than 5% rate, and office space had a 4.7% rate.
Despite the rising delinquencies, CMBS spreads continued to tighten over the past few months, shrinking 40 to 45 bps in March, according to Trepp. When panning out to view the entire first quarter of 2010, the highest-rated CMBS bonds saw spreads fall 105 to 115 bps. Trepp analysts said the rally was even more impressive considering that the Federal Reserve closed the door
yesterday on its support of legacy CMBS through the Term Asset-Backed Securities Loan Facility (TALF).
But away from the secondary side, commercial real estate woes will continue to drive bank failures, according to Trepp. Elizabeth Warren, chairperson of the Congressional Oversight Panel (COP) said that half of all commercial real estate loans will be underwater
by the end of 2010. These loans, she said, are mostly concentrated in mid-size banks.
Trepp forecasts 200 bank failures in 2010 after 140 in 2009 and 25 in 2008. The failures could total as much as $170bn in assets.
Write to Jon Prior