Standard & Poor’s just released its end-of-year CMBS report, the oh-so-optimistically titled “Further CMBS Credit Deterioration Expected in 2009.”
Here are some of the report’s major conclusions, in brief:
- After climbing steadily for six consecutive quarters from a low of 0.27 percent at March 2007, delinquencies among rated commercial mortgage-backed securities (CMBS) escalated in the fourth quarter of 2008, ending the year at 1.10 percent. The dollar amount delinquent was $6.86 billion at the close of 2008, easily distancing itself from the $3.98 billion delinquent at December 2003, which was the previous peak for CMBS delinquencies.
- Given the 7.6 percent January 2009 unemployment rate, which we expect to reach 9 percent in early 2010, constrained liquidity, and the expected sharp decline in property fundamentals, we believe the CMBS delinquency rate could climb to 3.0 percent to 3.5 percent in 2009.
- The CMBS delinquency rate accelerated briskly last year, albeit off a relatively low base, and finished 2008 224 percent higher on a year-over-year basis. When you consider that the recession started in December 2007, according to the National Bureau of Economic Research (NBER), the increase isn’t all that surprising. For comparative purposes, delinquencies in the first full year following the start of the previous recession (March 2001 to March 2002) grew by 71 percent.
S&P reports that the hotel subsector was hardest hit, with delinquencies increasing to"$874.1 million from $300.4 million in the fourth quarter, representing a 191% quarterly increase–the largest for the year and for all property type. For 2008, the amount delinquent increased by 375%."
But the retail subsector wasn’t much of a winner, either, with delinquencies increasing "to $1.90 billion from $803.8 million, representing a quarterly increase of 137% and an annual increase of 318%. With retailers closing stores and filing for bankruptcy, retail loan delinquencies are increasing."
As far as office delinquencies are concerned, the picture isn’t as dreary, at least not yet:
On the upside, the analysts over at S&P don’t expect delinquincies, particularly in the office subsector, to rise to the levels of the early ’90s, thanks to the comparative lack of over-supply.