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CMBS delinquencies fall in May despite risky bubble-era loans

The much-watched delinquency rate for commercial-mortgage backed securities (CMBS) continued decline in May, despite the high number of maturing bubble loans, Morningstar reported Monday.

CMBS delinquencies fell 10 basis points to 3.65 percent in the month, and were down from 4.55 percent from a year ago. The rate refers to the unpaid balance of CMBS that are 90-days or less delinquent, in foreclosure or real-estate owned.

The total delinquent balance has fallen to just under $29 billion of the total outstanding balance of $792 billion, the company said.

Analysts have been concerned about the coming wave of CMBS delinquencies involving 10-year commercial loans that were loosely underwritten from 2005 to 2007,  and will be maturing over the next two years. Those loans will need to be refinanced, but may be underwater, with the owners owing more in debt than the underlying property value.

Bubble loans remain a high concern 

The Morningstar report said loans originated between 2005 and 2007 remain a concern, and account for nearly 87 percent of delinquencies. Over the next 12 months, 7,463 CMBS loans representing an unpaid balance of $82.7 billion will require refinancing, Morningstar said. Of that amount, $4.47 billion. or 5.4 percent, were delinquent; $6.15 billion, or 7.4 percent, had been placed in special servicing; and $21.72 billion, or 26.3 percent, were being watched by the company for risk.

“Any denial by special servicers of loan extensions, modifications or debt restructuring, or a decision by borrowers to surrender the collateral, remain legitimate concerns if interest rates rise or the market turns,” the company said.

Loans backed by office properties accounted for nearly 31 percent of all delinquencies, Morningstar said, followed by retail at just under 30 percent. 


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