Commercial property loan delinquencies under watch

commercial loan delinquency

A pair of reports, one from Trepp and one from the Mortgage Bankers Association (MBA) show that delinquency rates for commercial mortgages are generally low. However, delinquencies rates are rising for certain categories of loans.

Your lender class may vary

The MBA report covers commercial property lending by Fannie Mae and Freddie Mac as individual entities and also by issuers of commercial mortgage-backed securities (CMBS), life insurance companies, and banks and thrifts as classes of lenders.

MBA notes that the standards that these various classes of lenders use in assessing whether to report a loan as delinquent vary widely. Therefore, the absolute delinquency rates reported by the different lenders are not directly comparable. Because of this, the first chart, below, shows the relative delinquency rate history for the lenders covered in the MBA report. The data displayed is normalized so that the average quarterly delinquency rate for each of the lender classes in 2018 is set to a value of 100.

multifamily mortgage delinquency rates

The chart shows that delinquency rates have generally been falling from their highs reached during the pandemic and are approaching their pre-pandemic lows for most classes of lenders. An exception to this pattern is Freddie Mac whose delinquency rate was rising before the pandemic and whose delinquency rate rose again in Q3. The report does not provide an explanation for this behavior, it just presents it as a fact.

The other class of lenders that saw its delinquency rate rise in Q3 was life insurers. Its delinquency rate more than doubled in the quarter, but from a very low level. Life insurers provide nearly 10 percent of mortgages on multifamily properties.

By the numbers, the reported delinquency rates in Q3 2022 were 2.77 percent for CBMS, 0.09 percent for life insurance companies, 0.26 percent for Fannie Mae, 0.13 percent for Freddie Mac and 0.44 percent for banks and thrifts.

Focusing on CBMS

The Trepp report focuses on CMBS loans that are 30 or more days delinquent.

Unlike the MBA report, the Trepp report breaks out CBMS delinquency rates by category of industrial property. It found that the delinquency rate on loans on multifamily property in November was 1.81 percent, up from 0.85 percent in October. The report notes that this jump was driven by a large loan in New York becoming delinquent during the quarter. It also notes that there is a large loan on San Francisco multifamily property that is at risk for becoming delinquent.

Multifamily was the only class of property whose delinquency rate did not decline in Q3, although the declines for some property classes were small. The delinquency rates for loans on other classes of commercial property were 0.41 percent for industrial, 1.70 percent for office, 6.63 percent for retail and 4.64 percent for lodging. The overall CMBS delinquency rate for all commercial property types was 2.99 percent, down from 4.38 percent one year ago.

The full MBA report includes data back to the year 2000 and can be found here, while the full Trepp report can be found here.