Bloomberg News

Commercial Mortgage Late Payments Decline Led By 2007 Loans

August 23, 2012

The delinquency rate on U.S. commercial-mortgages packaged into bonds declined in August, led by loans from the market’s peak five years ago, according to Morgan Stanley.

Payments more than 30 days late fell 8 basis points to a 12.13 percent rate this month, Morgan Stanley analysts said in a report today. The measure for deals issued at the height of the nation’s property bubble fell 23 basis points to 15.53 percent, the New York-based analysts led by Richard Parkus said.

Property owners have struggled to pay off maturing debt taken on in 2007 when commercial-mortgage bond sales surged to a record $232 billion and real estate values peaked. The performance of loans from that year, which has been “extremely” poor, the analysts said, improved this month as fewer borrowers needed to refinance.

“The magnitude of change in 2007 vintage delinquencies is greater than all other vintages, and we believe that it is driving the overall delinquency rate,” they wrote.

Fitch Ratings said in a report last month that delinquencies may have started to moderate as early as June.

“The months ahead should reveal whether June’s leveling off of delinquencies was the start of a trend or just a blip,” Fitch analyst Mary MacNeill said in the July 13 report.

Borrowers that owe more than their buildings are worth continue to grapple with maturing debt. Of 2007 loans that came due this month, 36.7 percent were able to refinance on time, according to Morgan Stanley.

Uneven Recovery

The risk from maturing loans is likely to peak in 2016 and 2017, with $121 billion in debt coming due each year, Nomura analysts Lea Overby and Steven Romasko said in a July 19 report.

Commercial-property values are staging an uneven recovery, with large coastal cities regaining the most as investors seek stable tenants in active areas, according to Moody’s Investors Service.

U.S. real estate prices rose 0.5 percent in June, extending gains that have retraced almost half of the losses recorded between the December 2007 peak and the January 2010 trough, according to the Moody’s/RCA Commercial Property Price indexes.

To contact the reporter on this story: Sarah Mulholland in New York at smulholland3@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net


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