The Commercial Real Estate Finance Council, the industry association for the commercial real estate finance market, is projecting another year of volatility – and an increase in loan delinquencies and the special servicing rate for commercial mortgage-backed securities loans.
CREFC anticipates the delinquency rate will be volatile in 2023 due to the unfavorable macro-economic landscape for lenders. Refinancing loans in a higher-rate environment will still be challenging, while asset valuations could get lower as cap rates rise and cashflows decline.
The report also touched on the CMBS delinquency rate, which rose by 5 basis points in December to 3.04 percent, an uptick driven primarily by the multifamily and retail sectors. After reaching a post-covid low of 2.92 percent in September 2022, the delinquency rate has inched upward for three consecutive months, the report stated.
CREFC also broke down the delinquency rates for conduit and SASB loans, which stand at 4.1 percent and 1.4 percent, respectively. The difference can be attributed in part to the greater liquidity of institutional borrowers, the report noted. SASB deals have an in-foreclosure rate of 0.5 percent.
The report found that the special servicing rate was down in December to 5.17 percent following a four-month increase. Total special serviced loan rates for conduit are at 6 percent and SASB at 3.9 percent – much lower than the more-than 10 percent rates during the peak of the pandemic. According to the report, 14 percent of retail loans that are in special servicing contribute as a primary driver to the SASB’s special servicing rate.
However, since the asset evaluation might drop amid an economic slowdown while interest rates are climbing higher, more loans are to be added to the existing $32 billion in special servicing, the report projects.
On the overall CRE lending landscape, banks hold half of the total outstanding CRE debt, which has reached $5.5 trillion. In the multifamily sector, government-sponsored enterprises took up the biggest portion at 39 percent.