Moody's: CMBS Delinquencies Rise In May, Outlook Deteriorates (WSJ)

Moody's: CMBS Delinquencies Rise In May, Outlook Deteriorates

DOW JONES NEWSWIRES Moody's Investors Service said delinquencies on loans in U.S. commercial mortgage backed securities increased further in May as the agency also boosted its year-end estimate of where the rate will be.

Last month's half-point jump--to 7.5% from 7%--follows two months of abating rates of growth.

Meanwhile, Moody's now projects the Commercial Mortgage Backed Securities (CMBS) delinquency rate will range from 9% to 11% at the end of 2010, compared with its previous outlook of 8% to 9%. Sustained joblessness in the U.S. and possible fallout from sovereign-debt problems in Europe spurred Moody's to take the more-negative view.

Analyst Nick Levidy said that while some commercial real-estate sectors like multifamily housing and hotels are starting to show signs of improvement alongside the broader economy, others like office and retail real estate have lagged and are likely to have more struggles ahead. Commercial real estate has been pummeled for more than a year as occupancy rates and rent decline, putting pressure on property owners.

In May, hotels again had the highest delinquency rate with multifamily a close second; both were at 13%. But office properties posted the sharpest rate of increase, jumping a percentage point from April to 5.6% and pushing above the industrial sector, which now has the lowest rate.

By region, the U.S. West had the steepest growth in delinquencies for the second straight month, and the South has the highest rate overall. The East has both the lowest rate and May's smallest monthly increase.

Last week, Fitch Ratings also reported an increase in CMBS delinquencies last month, mostly owing to an $1 billion increase in overdue office loans. Nevada remains the most delinquency-plagued state, with a rate of 23%.

-By Joan E. Solsman, Dow Jones Newswires; 212-416-2291; joan.solsman@dowjones.com

Fitch: Delinquent commercial loans rose in May
June 4, 2010
Bloomberg/Businessweek
Delinquencies among U.S. commercial loans backed by securities surged in May, largely due to a $1 billion net increase in office loans falling behind in payments, Fitch Ratings said Friday.

Fitch's commercial mortgage-backed securities index tracks loans on office, retail, apartment, industrial and hotel properties with mortgage payments at least 60 days overdue.

The May reading shows delinquencies jumped to nearly 8 percent. The credit rating agency said the main culprit behind the increase was office delinquencies.

"As expected, office loan delinquencies have begun to increase and will continue to rise into next year," said Mary MacNeill, managing director.

The latest and largest property to enter the index is the $380 million Columbia Center tower in Seattle.

Commercial-mortgage backed securities are pools of commercial real estate loans that are packaged and sold to investors. Loans packaged into securities only account for about one-quarter of all commercial loans outstanding.

By property type, hotels had the highest delinquency rate in May at 18.6 percent, while apartment properties had a 13.7 percent rate, Fitch said.

The delinquency rate for retail properties was 6 percent, while the rate for industrial properties stood at 5.1 percent.

The rate for office properties was 4.6 percent.

Grandpa: Surely this delinquency trend has a negative impact on Real Estate Investment Trusts (REIT) as delinquent payments negatively impact commercial property investment returns. Well, not exactly as REIT "investors" believe a HUGE positive turn in commercial real estate is just around the corner.

IYR (Real Estate ETF) closed up $2.01 yesterday to $50.05. On June 10, 2009, IYR closed at $34.38. While  the delinquency trend is not your friend, this ETF is up 45.6% in one year??? Welcome to the U.S. equity market where reading basic economic data is not required. Wall Street loves Americans that simply send in their hard earned cash and do not ask questions.