"Most commercial real estate market fundamentals remain strong"
The delinquency rate among KBRA-rated US commercial mortgage-backed securities (CMBS) resumed its downward trend in July, according to a new report from rating agency KBRA.
The CMBS delinquency rate fell to 2.91% in July, down 10bps basis points from June, when delinquencies rose 15bps – the second time it has increased since reaching a COVID-era peak of 8.2% in June 2020.
However, despite the reversal, the commercial mortgage industry is expected to face headwinds amid rising inflation and the looming possibility of a recession. According to the Mortgage Bankers Association’s forecast, commercial and multifamily mortgage borrowing and lending will plunge 18% to $733 billion in 2022 from $891 billion in 2021.
Read more: Commercial and multifamily originations slow on economic uncertainty
“The rapid changes taking place across space, equity, and debt markets are having a significant effect on commercial and multifamily real estate transaction volumes,” said Jamie Woodwell, MBA’s vice president for commercial real estate research.
“As with the economic uncertainty created by the backdrop of high inflation and rising interest rates, we may not see clear trends in the delinquency rate for the next few months,” KBRA wrote in its release.
The lodging sector recorded the biggest delinquency improvement in July, down 48bps to 4.82%. Retail (down 18bps to 5.38%) and multifamily (down 16bps to 1.09%) followed. Meanwhile, mixed-use, office, and industrial each generated a monthly increase. The combined percentage of delinquent and specially serviced loans declined six basis points to 4.58%.
“Most commercial real estate market fundamentals remain strong, with significant increases in the incomes and values of many properties in recent years. These factors are why MBA expects loan demand to begin to bounce back in 2023 and 2024,” Woodwell said.
