As Five-Year Debt Comes Due, CMBS Sector Faces New Challenges via NREIonline.com

For much of the past few years, the CMBS delinquency rate has climbed to vertiginous heights, breaking all futility records in the process.

After bottoming at 0.28 percent in June 2007, according to Morningstar, the CMBS delinquency rate began to rise soon after commercial real estate values and vacancy rates fell. The rate peaked at 8.43 percent in July 2011 and as of the end of November had retreated mildly to 8.19 percent. Loans originated with aggressive underwriting assumptions about future occupancies, rents and values turned sour quickly. And even though quite a few troubled loans were “extended and pretended,” that practice didn’t prevent many loans from going bad.

In 2011, things stabilized a bit. While the delinquency rate continued to climb, it was not in the large monthly jumps that marked previous years. And some of the troubled loans were even being resolved.

But 2012 begins a dangerous new stage for the CMBS sector. That’s because some of the most aggressive loans written in 2007 are now coming due. Five-year debt originated at the peak of the market is hitting its maturity, and there are real questions as to whether much of it can be paid down or refinanced.

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