The most disturbing observation from this month's RealPoint CMBS analysis, aside from the surge in delinquencies to an all time high of $42 billion, is that the average loss severity on CMBS liquidation has just hit a record of 52.7%. That means that on average less than half the loan is recovered in liquidation. Surely, this is not the kind of news that REITs are looking for as they perch from atop 52 week highs.
More from RealPoint:
In December 2009, the delinquent unpaid balance for CMBS increased by another $3.7 billion up to $41.64 billion from $37.93 billion a month prior. This includes the $4.1 billion Extended Stay Hotel loan from the WBC07ESH transaction. Pursuant to an amended cash management agreement, all excess funds are being held in a reserve account while the master servicer is only passing through what is deemed recoverable. Realpoint expects the delinquency reporting for this loan to continue in the nearterm, accompanied by new delinquency from other large watchlisted assets where borrowers have begun asking for debt relief and loan restructuring (such as the $3 billion Peter Cooper Village / Stuyvesant Town loan spread through multiple CMBS deals via pari passu structure, which may soon be delinquent).
Otherwise, the overall delinquent unpaid balance is up 380% from one-year ago (when only $8.68 billion of delinquent balance was reported for December 2008), and is now over 18 times the low point of $2.21 billion in March 2007. An increase in four of the five delinquent loan categories was noted in December (30-day category decline), while the distressed 90+-day, Foreclosure and REO categories grew in aggregate for the 24th straight month – up by another $2.53 billion (11%) from the previous month and over $21.52 billion (475%) in the past year (up from only $4.53 billion in December 2008).
The total unpaid balance for CMBS pools reviewed by Realpoint for the December 2009 remittance was $797.18 billion, down from $806.11 billion in November. Both the delinquent unpaid balance and delinquency percentage over the trailing twelve months are shown in Charts 1 and 2 below, clearly trending upward. The resultant delinquency ratio for December 2009 of 5.22% (up from the 4.71% reported one month prior) is over five times the 1.025% reported one-year prior in December 2008 and 18 times the Realpoint recorded low point of 0.283% from June 2007. The increase in both delinquent unpaid balance and ratio over this time horizon reflects a steady increase from historic lows in mid-2007.
And RealPoint's short-term forecast:
- Over the past three months, delinquency growth by unpaid balance has averaged roughly $3.3 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 first quarter 2010, the delinquent unpaid balance would reach $54 billion and reflect a delinquency percentage slightly above 6.8% by March 2010. Carried through mid-2010,the delinquent unpaid balance would top $66 billion and reflect a delinquency percentage above 8.5% by June 2010.
- In addition to this growth scenario, if we again add-in the potential default of the $3 billion Peter Cooper Village / Stuyvesant Town loan, the delinquent unpaid balance would reach $57billion and reflect a delinquency percentage above 7.2% by March 2010. Carried through mid-2010, the delinquent unpaid balance would top $69.4 billion and reflect a delinquency percentage close to 9% by June 2010.