That is some jump in the CMBS delinquency rate:
That’s from credit rating agency Realpoint Research, who estimate that the delinquent unpaid balance for CMBS increased by $9.87bn to a one-year high of $28.65bn in June.
Now, a big part of that increase, $3.38bn, is down to the bankruptcy of real estate investment trust General Growth Property. When GGP went under in April, it took about 160 small shopping centres with it — about 100 of which are held in CMBS. That CMBS is now 30-days delinquent but being specially-serviced while the CMBS bondholders wrangle in court over the GGP bankruptcy. However, even without the GGP effect you get a pretty stunning increase in the default rate.
In fact, Realpoint estimate the delinquency rate will jump even higher by the end of the year:
Overall, we now expect the delinquent unpaid CMBS balance to continue along its current trend and grow in excess of $50 to $60 billion before the end of 2009. Based upon an updated trend analysis, we expect the delinquency percentage to grow in excess of 6% before year-end 2009 (potentially approaching and surpassing 8% under our heavily stressed scenarios). This outlook is mostly due to the reporting of several large loans from recent vintage transactions that continue to show signs of stress and default, along with continued balloon maturity defaults from more seasoned vintage transactions.
With default rates like these, it’s easy to see why commercial real estate has rather suddenly become the newest anguish for the US economy, and something to keep Fed chairman Ben Bernanke awake at night, even as he hopes to lift prices via the legacy CMBS portion of the Talf.
What’s perhaps more worrying, however, is that defaults are increasing faster than troubled-CMBS are being liquidated or resolved — meaning further downward pressure on commercial real-estate prices at a time when the market could really do without it. First American CoreLogic, for instance, estimates that almost $165bn worth of commercial real estate loans will mature this year and will need to be refinanced or sold on. That becomes increasingly difficult the more prices contract. Back to Realpoint:
The growing rate at which liquidated or resolved CMBS credits are replenished by newly delinquent loans remains a concern, especially regarding further growth in the Foreclosure and REO categories (evidence of additional loan workouts and liquidations on the horizon for 2009 and 2010). Through June 2009, newly reported CMBS delinquency continued to outpace monthly liquidations by a very high ratio, raising our concerns for further deterioration in the market.
Related links:
CDOs, a tendency to liquidate – FT Alphaville
An ode to JPMCC 2007-LDPX A2S – FT Alphaville
Re-Rem-ic-ing the Talf – FT Alphaville
S&P’s CMBS flip-flop – FT Alphaville