Late CMBS Loan Payments Exceed 11%, Morgan Stanley Says
The delinquency rate on U.S. commercial mortgages packaged and sold as bonds surpassed 11 percent in May as borrowers struggle to pay off maturing loans, according to Morgan Stanley.
Payments on the debt at least 30 days late jumped 0.22 percentage point to 11.91 percent, Morgan Stanley analysts said in a report today. The surge marks “the third sizable consecutive month-over-month increase,” said the analysts led by Richard Parkus in New York.
Borrowers are falling behind on payments as debt taken out at the market’s peak matures, with loans from the commercial property boom in 2006 and 2007 deteriorating the most, the analysts said. Of $3.63 billion in shopping mall, hotel and skyscraper mortgages that came due last month, 61 percent didn’t pay off at their maturity date, they said.
U.S. commercial-property price gains slowed in the past three months as concern over Europe’s debt crisis reduced available financing for real-estate transactions, according to a May 24 report from Moody’s Investors Service. Valuations are still 34.5 percent below the 2007 peak, CoStar Group Inc. said in a note this month.
More than $59 billion in commercial mortgages contained in bonds are classified as delinquent, data provider Trepp LLC said in a report today.
‘Could Be Bumpy’
“A big driver of the recent surge in the delinquency rate has come from loans that were originated in 2007 that are coming due now,” Manus Clancy of Trepp said in the note. “The next two or three months could be bumpy, but the second half of the year should bring a leveling off of the rate.”
Wall Street has arranged about $10 billion in CMBS sales this year, compared with $28 billion in 2011, according to data compiled by Bloomberg. Issuance dropped to $2.9 billion in the fourth quarter from $8.3 billion in the previous three months as the risk of Greece defaulting soared and credit markets swooned, pushing Wall Street to the sidelines.
Lenders hold commercial mortgages for several months before selling them as securities, which means swings in values as they accumulate debt can reduce profit margins and thwart efforts to boost sales. A lack of sales chokes off funding to borrowers with debt coming due. A record $232 billion was sold in 2007.
The extra yield investors demand to own top-ranked commercial-mortgage bonds rather than Treasuries climbed 13 basis points to 1.99 basis points this month in the biggest increase since August as the European debt crisis rattles markets, according to a Barclays Plc index. The spread reached a monthly high of 203 basis points on May 17. A basis point is 0.01 percentage point.
Wells Fargo & Co. and Royal Bank of Scotland Group Plc are marketing about $864.9 million of bonds tied to commercial mortgages, according to a person familiar with the offering who declined to be identified because terms aren’t set.
Forecasts for 2012 issuance range from Wells Fargo’s $25 billion to Credit Suisse Group AG’s projection of as much as $45 billion.
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