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Realpoint October CMBS Update: $32.6 Billion In October Delinquencies (504% YoY Increase), Forecasts $65 Billion By June 2010

Submitted by Tyler Durden on 11/30/2009 23:30 -0400

The October delinquent loan balance of $32.55 billion is a 504% increase from the $5.39 in October 2008. Additionally, RealPoint presents a scenario in which the delinquencies in June 2010 would hit $65 billion (8.3% total delinquency rate): a doubling from the most recent level and unprecedented pain for any form of CRE exposure.

In October 2009, the delinquent unpaid balance for CMBS increased slightly to $32.55 billion from $31.73 billion a month prior. Such delinquent unpaid balance is up an astounding 504% from one-year ago (when only $5.39 billion of delinquent balance was reported for October 2008), and is now over 14 times the low point of $2.21 billion in March 2007. An increase in four of five delinquent loan categories was noted in September, with a decline experienced in the 60-day bucket. Despite such decline, the distressed 90+-day, Foreclosure and REO categories grew in aggregate for the 23rd straight month – up by $2.36 billion (12%) from the previous month and over $18.77 billion (572%) in the past year (up from only $3.283 billion in October 2008).

Overall, following the correction of the GGP-sponsored loans in July and the average growth month-over-month, we now expect the delinquent unpaid CMBS balance to continue along its current trend and grow between $40 and $50 billion before the end of 2009 / first quarter of 2010. Based upon an updated trend analysis, we now project the delinquency percentage to grow between 5% and 6% through the first quarter of 2010 (potentially approaching and surpassing 7-8% under more heavily stressed scenarios through the mid-2010). This outlook is mostly due to the reporting of several large loans from recent vintage transactions that continue to show signs of stress and default, along with continued balloon maturity defaults from more seasoned transactions. In addition, while we maintain our negative outlook for both the retail and hotel sectors for the remainder of 2009 and into 2010, we are closely monitoring the negative trends surrounding several large struggling multifamily loans that have near-term default risk, and the lack of steady new issuance to offset the continued increases in delinquent unpaid balance.

In addition to this growth scenario, if we add-in the potential default of two very large Realpoint High Risk Loans under review (namely the now specially-serviced $3 billion Peter Cooper Village / Stuyvesant Town loan spread through multiple CMBS deals via a pari passu structure, and the specially-serviced $4.1 billion Extended Stay Hotel loan in the WBC07ESH pool), the delinquent unpaid balance would top $46 billion and reflect a delinquency percentage over 5.7% by December 2009. Carried through mid-2010, the delinquent unpaid balance would top $65 billion and reflect a delinquency percentage over 8.3% by June 2010.