Moody's CMBS Delinquency Tracker Hits Decade High

Yes, yes, everyone knows commercial real estate is a neutron bomb waiting to go off, and while many are yapping, nobody is doing jack. The Fed will deal with that implosion, the expectation goes, just as tidily as it dealt with the last bubble implosion. All, by the way, is good now - remember, every single Fed governor took turns yesterday to gang bang the concept of yet another bubble in process. Someone should familiarize the Fed members with the GOLDS COMDTY GP function in Bloomberg: remember the NY Fed has the biggest trading desk in the world: they should by now be familiar with more than just the BUY function on Bloomberg Tradebook.

So here is the data on the ongoing deterioration in CMBS, courtesy of Moody's, which data merely confirms data previously presented by RealPoint, the GSEs, and anyone else naive enough to care that this data set is relevant in Bubble Market 3000.



Aggregate Delinquency Rate

Delinquency increased 37 basis points in October, as measured by the Moody’s Delinquency Tracker (DQT). The delinquency rate now stands at 4.01%, more than six times the rate seen at the same time last year. The rate has increased over 375 basis points from the low reached in July 2007, with further increases anticipated.



In the past month the delinquency rate increased 37 basis points to 4.01%. This increase is in-line with the steady rise in the delinquency rate over the past six months. Five of the last six months have seen a gain in the delinquency rate in the range of 35 to 41 basis points. Only August, with a more modest 21 basis point increase, lies outside this range.


The past six months, May 2009 through October 2009, have had an average increase of 36 basis points in the delinquency rate. This is a significantly higher monthly average change in the delinquency rate than the previous six month period, November 2008 to April 2009, which had an average increase of 21 basis points.


Delinquency by Property Type

Hotels had the largest change in delinquency in October. The delinquency rate for hotels increased 123 basis points, bringing its rate to 6.20%. The hotel delinquency rate has reached its highest point in the history of the delinquency tracker, passing the old mark of 5.92% that occurred in June 2003. All five property types are currently at the highest rate recorded by the Moody’s DQT.

Multifamily remains the worst performing property type in October. The 38 basis point increase in the delinquency rate was primarily influenced by three large properties that are newly delinquent in the eastern region (see Figure 20). The multifamily delinquency rate is now 6.47%.

Delinquency By Vintage

Figure 5 displays the delinquency rate for each vintage as of the end of October. Delinquency was calculated based on loans currently delinquent as a percent of current balance as well as original balance of all CMBS loans in the vintage.

The 1999 vintage now has a delinquency rate over 20%, with significant increases throughout the past year. Less than 17% of the original balance of the 1999 vintage remains outstanding. The 1998 vintage, on the other hand, has had two consecutive months of declining delinquency rates. With the exception of 2005, vintages between 2004 and 2008 now have a delinquency rate exceeding 4%.


Figure 6 shows the effect of the financial crisis on the seasoning curve. Typically, a loan can be expected to have a low chance of falling delinquent in the first two years of its life (<1%), with delinquency ramping up slightly in the next three years, but still remaining below the 3% mark. Over the past year however, the crisis has caused the delinquency rate of later vintage loans to increase very rapidly, resulting in default rates for these vintages well above those of other vintages after a similar period of seasoning.


The high rate of delinquency in the 2004 vintage is unsurprising, as five year loans originated in 2004 matured or are maturing this year, and are attempting to refinance in a very difficult market. The 2005 vintage will likely experience a sharp rise in delinquency in 2010 due to similar refinancing difficulties.

Delinquency By Region

Delinquency increased in all four regions, with the South as the worst performer in October. All five major properties types in the South recorded an increase in their delinquency rate greater than 30 basis points. The South had a 47 basis point rise in its overall delinquency rate, which now stands at 5.61%. Hotels and multifamily properties had the largest gain in delinquency within the region.


The East was the second worst performer in the month with a 44 basis point rise in delinquency. This brings the eastern delinquency rate to 2.58%, still the lowest of any region. This rise in delinquency is attributable to a significant gain in the eastern multifamily delinquency rate and steadily increasing delinquencies in both the office and hospitality sectors. The West performed slightly better than the nation with a 35 basis point increase, compared to a 37 point increase for the national delinquency tracker. The western delinquency rate is 4.41%.


The Midwest had the mildest increase in delinquency of the four regions, only gaining 17 basis points to 4.95%. The Midwest had declines or minimal increases in delinquency in three property types. Only industrial recorded large rises in delinquency when compared with September.


Delinquency By State

Figure 13 displays CMBS delinquency rates by state. Michigan and Nevada are the first two states in the current recession to record a delinquency rate greater than 10%. These two states have respective delinquency rates of 10.78% and 10.07%. In October, Rhode Island, with a delinquency rate of 9.81%, joined Arizona, which has a 9.35% delinquency rate, as another state that has a delinquency rate greater than 9%. No other state has a current delinquency rate greater than 7%.



And a summary of all critical current and newly delinquent loans: