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DBRS Morningstar CMBS Monthly Highlights - February Remittance

DBRS Morningstar presents the Monthly Highlights report, which covers CMBS market activity and performance for conduit and SASB loans (excluding agency loans). In February:

--The delinquency rate continued its decline in February, falling 21 basis points (bps) to 3.65%, the lowest level since April 2020.

-- Compared with year-ago levels, the hotel sector saw the largest percentage decline in delinquent balance, falling 49.5%, followed by retail with a 40.8% decrease.

-- The special servicing rate fell for the 17th straight month, down 39 bps to 5.94%, as the volume of loans returned to master servicing continues to outpace new transfers by a wide margin.

-- The hotel sector saw the steepest special servicing rate decline, putting it in front of the retail special servicing rate for the first time since the start of the pandemic.

-- Liquidation activity remains subdued by historical standards as the volume of liquidated loans posted its sixth consecutive month below $400 million while the weighted-average loss severity sits below its historical average.

-- Despite the year-to-date maturity payoff rate registering 57.4%, we expect it to rebound and rise to roughly 70% for 2022.

-- While a resurgence in consumer spending should energize the retail sector, which accounts for nearly 40% of maturing loans, roughly 20% of these loans have a debt service coverage ratio (DSCR) less than 1.10 times (x), which may limit their ability to obtain takeout financing.

-- Despite the ongoing uncertainty in the office sector, which accounts for nearly 25% of maturing loans, as the omicron variant continues to threaten plans for a full return to offices, accelerated virtual working trends may affect office demand less than commonly thought. Although employees may spend less time in the office, the need to accommodate peak office attendance limits the amount of potential reductions in space.