Moody's: US CMBS loan delinquencies climb to 7.50% (yet REITS continue to also climb)

New York, June 10, 2010 -- The delinquency rate on loans included in US Commercial Mortgage Backed Securities (CMBS) increased 48 basis points in May to 7.50%, according to Moody's Investors Service's Delinquency Tracker (DQT). Although the rate of increase has tailed off in each of the last two months, Moody's now says it expects the delinquency rate to end 2010 in the 9%-11% range, an increase from the previous expectation of 8%-9%.

Indications of the fragile nature of the recovery in the US, with stubbornly high unemployment, along with ongoing difficult conditions for some CMBS sectors and the possibility of negative effects on the US economy from the sovereign debt problems in Europe, have led to Moody's slightly more negative view.

"While certain property sectors (such as multifamily and hotels) are starting to show signs of improvement along with the broader economy, other sectors (like office and retail) have lagged national economic trends and most likely have more pain ahead," says Moody's Managing Director, Nick Levidy.

Moody's Delinquency Tracker (DQT) tracks all loans in US conduit and fusion deals issued in 1998 or later with a current balance greater than zero.

In May, 349 loans became newly delinquent, raising the total number of currently delinquent loans in the US to close to 4,000 with a total balance of $48.8 billion. One year ago, there were 1,800 delinquent loans with a balance of $15.5 billion. The DQT stood at 2.27%.

By property type, the hotel sector continues to have the highest delinquency rate, ending May at 13.25% after increasing 27 basis points during the month.

Multifamily remained a close second, after rising 26 basis points during May to 13.13%.

The office sector, however, posted the steepest rate of increase, rising 101 basis points to 5.59% during May. It no longer has the lowest delinquency rate, a position the industrial sector now holds after rising only 6 basis points during the month to 5.29%.

Retail rose 24 basis points during May, to a 6.10% delinquency rate. 

By region, the West saw the steepest climb in its rate of delinquencies for the second consecutive month, rising 87 basis points in May to 8.63%. The South continues to have the highest rate among the four regions at 9.49%, after a 73 basis point increase during the month.

The Midwest saw its delinquencies rise 74 basis points in May to 8.23%.

At 5.73%, the East continued to have the lowest delinquency rate after it also saw the smallest monthly increase, a rise of 11 basis points from April.

By state, Nevada saw its rate continue to soar during the month as it increased 263 basis points to 22.66%. No other state has a delinquency rate above 15%.

Grandpa's Recap:

If you doubt grandpa's source: Link to Moody's June 2009 results
Hotel: 3.25% is a 189% increase from June 2009
Multi-family: 13.13% is a 303% increase from June 2009
Office: 5.59% is a 249% increase from June 2009
Retail: 6.10% is a 109% increase from June 2009

Moody's overall delinquency rate forecast up 80-120% for 2010 versus 2009 estimate

Real Estate Investment Trusts (REITS) LOVE rising delinquencies! Wall Street market manipulators are professionals so please do not try applying logic to the following if you are at home alone:

Percentage gains from 6/11/2009 through 6/11/2010

49.8% IYR (Real Estate ETF) 
68% SPG (Simon Property Group)
66% HST (Host Hotels and Resorts)
66% VNO (Vornado Realty Trust)
62% BXP (Boston Properties)
39% PSA (Public Storage)

Grandpa welcomes all "logical" explanations...