Commercial, Multifamily Delinquencies Up for Second Month

For the second straight month in December, default rates on American commercial and apartment building mortgages rose for the second consecutive month, according to the Mortgage Bankers Association’s latest monthly report.

The rate rose from 5.7 percent in November to 6 percent in December. The increase was due to the fact that more loans were newly defaulted, the association said. Survey respondents reported $ 1.9 trillion in loans in October, roughly half of their total outstanding mortgage debt of $ 3.8 trillion.

“The rise in December commercial and multi-family mortgage arrears is a symptom of the economic slowdown resulting from the recent surge in COVID-19 cases,” said Jamie Woodwell, MBA vice president of commercial real estate research, in a statement. “Arrears initially rose in April and May, driven by the impact of the pandemic on lodging and retail properties. Crime rates fell for several months as the economy stabilized. More recently, the added stress from a winter wave of the virus has weakened the economy and challenged some property owners as property incomes have been disrupted. The launch of several COVID-19 vaccines is good news long term, but the surge in commercial mortgage arrears last month confirms that there are still many challenges before the economy reopens fully. “

Of commercial and multi-family mortgages, 3.5 percent were 90 or more days in arrears or related to bank-owned properties that were unchanged from the previous month, while 1.5 percent were less than 30 days in arrears, down from 1 percent in November. The proportion of loans that were 30 to 60 days and 60 to 90 days in arrears remained unchanged from the previous month.

Loans backed by lodging and retail properties remain the worst, according to the MBA. The aggregate percentage of defaulted home, office and industrial loan balances rose in December, with 22.5 percent of home loans being out of date in December, up from 22.1 percent in November. The crime rate in retail property loans improved from 12.9 percent to 11.9 percent in December.

Industrial and office mortgage default rates rose noticeably, with the former rising from 2.5 percent in November to 4.2 percent in December and the latter rising from 2.4 percent to 2.7 percent between the two months.

Apartment buildings remained the healthiest. The crime rate rose slightly from 1.6 percent in November to 1.7 percent in December.

Overall, CMBS lending rates increased due to a concentration of hotel and personal loans compared to other sources of capital:

  • 10.5 percent of CMBS loan balances were long-term in December, up from 10.4 percent in November.
  • Long-term interest rates for other sources of capital were more moderate and more inconsistent.
  • 2.6 percent of FHA apartment and health loan balances were long-term, up from 2.8 percent in November.
  • 1.9 percent of life insurance company loan balances were long-term, up from 1.7 percent in November.
  • 1.3 percent of GSE’s loan balances were long-term and were flat as of November.