CMBS Delinquencies Are Still on the Mend
As 2014 CMBS issuance volume appears on track to break last year’s post-recession record, it’s worth remembering that we’re still digging out from the last big wave of issuance.
This year’s total CMBS volume may not cross the $100 billion mark as some predicted last winter, but with the $71.2 billion issued in the first nine months plus several deals in the pipeline, a year-end total in excess of $90 billion is considered likely. That would beat 2013’s total of $86 billion.
Today’s volume is a far cry from 2007, when total global CMBS issues peaked at $314 billion, more than $229 billion of it from the U.S. alone. But rating agencies like Moody’s and Fitch Ratings reportedly say the quality of underwriting is as weak today as it was before the market turned down.
The effects of the downturn have not gone away entirely. Delinquencies were below 1 percent prior to the crash, and rose steeply throughout 2009 and 2010, peaking at about 8.5 percent in the summer of 2012. Only in the past two years have we started to put these bad loans behind us, as delinquencies fell almost to 4 percent in September.
In fact, delinquencies for some product types have started coming down even more recently than 2012, according to data from PREA. Office delinquencies plateaued at about 10 percent for two years before finally starting to decline in early 2013. Industrial property delinquencies reached their highest point in the spring of 2013, when a whopping 12 percent of loans were delinquent. Office and industrial delinquencies are still high at about 6 and 7 percent, respectively.
Let’s hope that underwriting standards hold up better this time around, or we could be seeing a new wave of delinquent loans while we’re still cleaning up after the last party.