CMBS Distress Metrics Continue Trending Downward

Article originally posted on HERE on November 24, 2021

Metrics for distressed CMBS declined across the board in October, according to the Commercial Real Estate Finance Council. The overall 30+ day CMBS delinquency rate fell by 64 basis points to 4.6%, the largest monthly drop since February and the 16th consecutive monthly decline.

The CMBS delinquency rate is now down 570 bps from its June 2020 peak. However, CREFC said it’s still elevated compared to the pre-pandemic level of 2.2% at the end of 2019, and the special servicing rate is still elevated at 7.2%, although down by 32 bps in October..

“The pandemic-related CMBS delinquency peak was similar to that reached during the Global Financial Crisis (GFC) at 9.8%,” according to CREFC. “Yet, unlike the GFC, pandemic-related delinquencies were quick to reverse course, falling 40% within 10 months.”

REO asset volume has been significantly more muted during the pandemic than the GFC. The REO rate since the onset of the pandemic has remained consistent at ~1%, while the rate following the GFC eventually surpassed 3%.

“The sharp declines in delinquent and special serviced loans suggest that pandemic-related REO volumes will continue the trend and be substantially lower than in the GFC,” CREFC reported.