Key Highlights

  • Delinquencies in commercial mortgage-backed securities spiked 213 points in June to 3.59% from 1.46%
  • Largest one-month surge since Fitch Ratings began tracking this metric nearly 16 years ago
  • Hotel and retail sectors hit the hardest

Not surprisingly but quite remarkably, commercial delinquencies in mortgage-backed securities skyrocketed to 3.59% in June from 1.46% in May. These delinquencies represent the largest one-month spike in commercial mortgage-backed securities since Fitch Ratings started tracking this metric.

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This 3.59% commercial delinquency rate totaled $10.8B in June.

Fitch Ratings analysts believe this commercial delinquency spike is only the beginning. The outfit is projecting a delinquency rate between 8.25% and 8.75% by the end of Q3 2020.

Fitch Ratings broke down these shorter-term, 30-day delinquencies by sector:

  • Hotel: 11.49% from 2% in May
  • Retail: 7.86% from 3.82% in May
  • Mixed Use: 4.17% from 0.95% in May
  • Office: 1.92% from 1.39% in May
  • Industrial: 0.67% from 0.28% in May
  • Multifamily: 0.59% from 0.41% in May

Hotel and retail delinquencies represented 49% ($7.7B) and 34% ($5.4B) respectively of the total 30-day delinquencies. These 30-day delinquencies are expected to become 60-day delinquencies more quickly throughout the summer. If such expectations become reality, delinquency rates would then surpass Great Recession peaks.

Commercial delinquencies are transferred to “special servicing” for forbearance or repayment plans. For some perspective, in the two months pre-pandemic, 34 commercial delinquencies were transferred into special servicing and 674 commercial delinquencies ($9B) were transferred into special servicing for ALL of 2019. In the three months from March through May, 439 commercial delinquencies (21B) were transferred into special servicing.

Might any of these commercial delinquencies be potential investment properties for you and/or your clients?

 

Thanks to CNBC and Fitch Ratings.

Also read: Inman Guide on Communicating in New Normal – Part II, Purchase Applications WAY Up – Interest Rates WAY Down, Consumer Sentiment in Housing Market Bounced Up in June