CMBS Delinquencies Hit Fresh Record, Now At $51 Billion, 268% Increase From Prior Year

The latest RealPoint monthly CMBS delinquency report update is out and it continues to get worse and worse. In March, the total amount of delinquent CMBS increased by $3.2 billion to $51.5 billion, or 6.4% of the total notional outstanding. "Overall, the delinquent unpaid balance is up almost 268% from one-year ago (when only $13.89 billion of delinquent unpaid balance was reported for March 2009), and is now over 23 times the low point of $2.21 billion in March 2007. The distressed 90+-day, Foreclosure and REO categories grew in aggregate for the 27th straight month – up by $2.57 billion (7%) from the previous month and $30.31 billion (352%) in the past year (up from only $8.6 billion in February 2009)." And this data excludes the now defaulted Peter Cooper village which still remained current in March courtesy of its reserve. This loan will effectively go into real default in April or May at the latest, pushing the total delinquencies by at least another $3 billion. That's not the worst: RealPoint now sees the total delinquency rate surpassing 12% under a more stressed scenario, or double from here. Don't worry, the inability of the administration to delay the implosion of Commercial Real Estate is a victory of the bulls, and is just an indication of the "decoupling" of the CRE market fundamentals from the broader Alice in Lalaland parameters that set the everyday stock market.

From Realpoint:

With the combined potential for large-loan delinquency in the coming months and the recently experienced average growth month-over-month, Realpoint now projects the delinquent unpaid CMBS balance to continue along its current trend and grow to between $60 and $70 billion by mid 2010. Based upon an updated trend analysis, we now project the delinquency percentage to grow to between 8% and 9% through mid 2010, potentially approaching and surpassing 11% to 12% under more heavily stressed scenarios through the year-end 2010). This forecast / outlook is driven by the watchlist reporting of several Realpoint identified High Risk Loans from recent vintage transactions that continue to show signs of stress and are on the verge of delinquency, along with continued balloon maturity defaults from more seasoned transactions. As part of our monthly surveillance efforts of every CMBS transaction, we continue to monitor in detail many large Realpoint Watchlisted loans that have never met their pro-forma underwritten expectations. This includes a large amount of loans that remain current in payments but have already been transferred into special servicing - many of which may ultimately default based upon a denial of requests for loan modifications or debt restructuring by the special servicers, or a decision by borrowers to surrender the collateral.

Scenario 1 (Six-Month Historical Assumptions):

• Over the past six months, delinquency growth by unpaid balance has averaged roughly $3.22 billion per month. Assuming ongoing monthly pay-down and liquidation activity, if such delinquency average were increased by an additional 25% growth rate, and then carried through the second quarter 2010, the delinquent unpaid balance would reach $63.1 billion and reflect a delinquency percentage of 8% by June 2010. Carried through year-end 2010, the delinquent unpaid balance would top $87 billion and reflect a delinquency percentage just above 11% by December 2010.
• In addition to this growth scenario, when we add-in the default of the $3 billion Peter Cooper Village / Stuyvesant Town loan, the delinquent unpaid balance would reach $66 billion and reflect a delinquency percentage of 8.3% by June 2010. Carried through year-end 2010, the delinquent unpaid balance would top $90 billion and reflect a delinquency percentage near 11.5% by June 2010.

Scenario 2 (Three-Month Historical Assumptions):

• Over the past three months, delinquency growth by unpaid balance has averaged a slightly lower $3.14 billion per month. Assuming ongoing monthly pay-down and liquidation activity, if such delinquency average were increased by an additional 25% growth rate, and then carried through the second quarter 2010, the delinquent unpaid balance would reach $62.8 billion and reflect a delinquency percentage slightly above 7.9% by June 2010. Carried through yearend 2010, the delinquent unpaid balance would reach $86 billion and reflect a delinquency percentage near 11% by December 2010.
• In addition to this growth scenario, if we add-in the default of the $3 billion Peter Cooper Village / Stuyvesant Town loan, the delinquent unpaid balance would reach $65.8 billion and reflect a delinquency percentage near 8.2% by June 2010. Carried through year-end 2010, the delinquent unpaid balance would reach $89 billion and reflect a delinquency percentage near 11.2% by December 2010.

We are curious just how much of the ongoing deterioration trend in CMBS was taken into account by banks, all of which decided to reduce the loss reserves in the prior quarter.