Increasing CMBS Deliquencies -- What Does It Mean?

Delinquencies in commercial real estate loans that are sold as commercial mortgage backed securities (CMBS) have been steadily increasing over the past year.  The rate of seriously delinquent loans a year ago was 7.95% and today it is 9.14%. (See post by Mark Thomton at

According to Mr. Thomton's article some of the increase is a result of a technical change in how some services are reporting the data....but not all of it. Delinquency rates for CMBS loans  for office, hotel and multi-family housing properties are increasing, although loans for office properties still perform better than those for hotel, multi-family and industrial properties.  Surprisingly, retail property, while still experiencing a slightly higher delinquency rate, is now performing better than the other major property types. The other good news is that delinquencies for industrial property loans, while still higher compared to other property types, declined this month.

CMBS loans had been increasing significantly in the past year. I often represent clients who finance their acquisition of commercial property with a CMBS loan. I've seen more CMBS loan transactions in the past year than I has seen in the prior 2 years combined.

This steady increase in seriously delinquent CMBS loans is not good news for lenders or borrowers; particularly after hearing last month that S&P acknowledged faults in its formula for rating new loan pools. This news also comes on top of concerns over European debt, lousy job numbers, discussions about a possible double dip recession (although who out there feels like the first recession ever really ended?)

The end result? Spooked investors who will think twice about buying more CMBS, making it more difficult for lenders to sell their loans. All of this impacts the costs of the loans, and therefore there will be fewer of them. Bad news for both lenders and potential borrowers, who are left with fewer options, all of which will be more expensive.

For more info, see Mark Thomton's article titled "CMBS delinquency hits all-time high," and see also, "Commercial Mortgages Up, But For How Long?" by Eliot Brown at the WSJ 'Developments' blog.

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