There is a slow creep in delinquent credit that is starting to get noticed. The special-servicing and delinquency rates for securitized commercial mortgages rose again last month, Commercial Mortgage Alert first reported. While the rise was reasonably contained, it is the trend of commercial underperformance that is causing a mild degree of concern. The data on Commercial Real Estate comes as investors are closely watching the prospects for retail malls across the country.
Commercial Real Estate – More distress
The percentage of commercial mortgage-backed security (MBS) loans in special servicing hit 6.6% to close April, Commercial Mortgage Alert reported, citing Trepp data. The five basis point move higher from March came as the past-due rate on Fitch-rated commercial mortgage-backed securities (CMBS) climbed by nine basis points to end April at to 3.5%.
Both MBS and CMBS rates hit their highest levels since 2015.
“The shrinking CMBS universe, which has long contributed to a steady rise in both rates, had a far more substantial impact on Trepp’s tally,” the Commercial Mortgage Alert analysis pointed out.
Special services loan volume dropped by $438.4 million, to $27.2 billion, a drop that was “overshadowed by a $9.5 billion plunge in the aggregate balance of outstanding CMBS.” This plunge, as a result, reduced the denominator in Trepp’s calculation to $411.9 billion as of April 30.
Big office property delinquencies in the Southwest also drive the numbers
Driving that data was a number of idiosyncratic situations.
The biggest mortgage added to the CMBS reporting involved office properties in the Southwest. The $198.5 million fixed-rate loan to Crystal River Capital of New York was noted on three properties in Arizona and Texas: a 724,000-square-foot office building and an adjacent 1,905-space garage in Phoenix and a 429,000-sf office building in Houston.
The 10-year loan was transferred to special servicer C-III Asset Management on March 16, Commercial Mortgage Alert noted, following the warning it would default at maturity on April 1. The debt is now classified as nonperforming beyond maturity and was originated by Deutsche Bank and offered as a $4 billion pool offering.
Fully $819 million of mortgages were added to Fitch’s past-due roll last month. That number was notably greater than the $544 million of loans that moved off the list after being sold, modified or otherwise resolved. When paydowns are considered, Fitch’s tally of 60-day late loans payments or deals in foreclosure or maturity default rose to $12.4 billion, higher by $283 million during April.