It seems the news continues to be better for CMBS than for commercial real estate as a whole.
Standard & Poor’s has released its monthly CMBS snapshot for July, and the top line is that the pace of increase in the delinquency rate has nearly flattened:
Ratings downgrades have also declined, though of course the situation varies by property type. But overall, the report is encouraging given the pace at which delinquencies had been ticking ever upwards in the first quarter of the year.
Especially interesting is how the problems in the US housing sector are now impacting these securities, with multifamily sector CMBS benefiting while delinquencies in manufactured housing community CMBS are climbing. From the report (emphasis ours):
According to the U.S. Census Bureau, the home ownership rate fell to 66.9% in the second quarter, the lowest rate since the fourth quarter of 1999. In our opinion, the multifamily sector may be profiting from hesitant homebuyers. According to MPF Research, the multifamily sector has experienced positive net absorption (the number of units rented exceeded those vacated). In fact, vacancy rates declined to 6.6% in June from 8.2% at the end of 2009.
At the same time, however, Standard & Poor’s notes that one housing-related CMBS segment, the manufactured housing community sector (MHC) (included within the delinquency category “other”), had the largest delinquency increase (22%) in July. Although the MHC delinquency rate (4.63%) is one of the lowest within our CMBS population, it has increased 53% since the beginning of the year. The demand and competitiveness of manufactured housing may be feeling the effects of a large inventory of unsold homes at reduced prices.
And here is S&P’s conclusion:
Despite the Federal Reserve’s outlook for slower job growth given the uncertain economic recovery, prices for contracts at the upper part of the capital structure staged a rally over the past few weeks. We attribute this improvement to slowing deterioration in property fundamentals, as well as deceleration in the growth of CMBS delinquencies. Through July, Standard & Poor’s CMBS delinquencies have posted four consecutively smaller month-over-month increases. In our opinion, market participants may be encouraged by the reportedly small delinquency increases (compared with the sharp delinquency jumps experienced in 2008 and 2009).
Related links:
US CMBS delinquencies tick ever upwards – FT Alphaville
A mixed outlook for CRE and CMBS – FT Alphaville