DBRS Morningstar CMBS Monthly Highlights— November Remittance: Delinquency Rate Decline Continues to Slow, Special Servicing Rate Jumps for Fourth Straight Month
• The delinquency rate for loans packaged in commercial mortgage-backed securities (CMBS) eked out a small improvement for November, declining 1 basis point (bp) to 2.89%. The delinquency rate has declined more than 7 percentage points from its pandemic high.• While property fundamentals have held up reasonably well, we expect to see the rate of contraction to continue to decelerate amid a challenging macroeconomic backdrop.
• Among the major property sectors, the retail sector posted the greatest delinquency rate decline, falling 38 bps to 6.22%, and multifamily experienced the largest increase, rising 34 bps to 1.21%.
• Compared with year-ago levels, the hotel sector saw the largest percentage decline in delinquency rate, falling 3.94 percentage points, followed by retail with a decline of 1.27 percentage points.
• The special servicing rate increased for the fourth month in a row, rising 29 bps to 5.55%, on the back of rising multifamily and hotel distressed assets.
• Distressed property sales declined in November as liquidation activity shrunk to around $262 million from roughly $340 million, while the weighted-average loss severity tumbled to 19.9% from more than 45%.
• The November maturity payoff rate continues to underperform, rising to 52.2% from 42.3%, as lending activity is tepid except for prime assets. Because of this, DBRS Morningstar doesn't expect much movement through year end in the year-to-date (YTD) maturity payoff rate, which stands at 58.4%.
• Our outlook for the 2023 maturity payoff rate isn't much changed at roughly 60% because higher interest rates and a slowing U.S. economy will challenge refinancing maturing loans.
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