Apartments: The Belle of the Ball, Except for CMBS via GlobeSt.com

By any measure—except one—multifamily is the belle of the ball in commercial real estate. It’s the asset class domestic and foreign investors alike are clamoring for; it’s considered to be more immune to the vagaries of the economy than, say, office or retail; it’s the sector for which still-cautious lenders are ponying up construction financing. And, as NAREIT’s Calvin Schnure told GlobeSt.com earlier this month, it’s also leading the REIT parade, with apartment REIT price returns up 225% since the market trough of March 2009.

However, it’s also the sector with the highest CMBS delinquency rate. Fitch Ratings on Friday said late-pays for loans backed by apartment assets rose last month to 13.30% of Fitch-rated CMBS in the sector, up from 13.04% in January. Standard & Poor’s put it at 13.58% at the end of December 2011. At the start of the previous recession, that delinquency rate was 1.10%.

As Jerry Seinfeld used to say, “What’s up with that?” S&P credit analyst Larry Kay offers some insights: although the multifamily delinquency rate has improved somewhat in recent months, “we believe that a significant decline will remain elusive until rents firm and there are fewer concessions available among class B and C apartments, the weakest housing markets strengthen and troubled New York City rental conversion projects resolve their issues,” Kay says in a statement. “The path to recovery for multifamily CMBS will also depend on the level of job growth in the various markets, which will influence the timing and extent of the local property markets’ progress.”

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