Standard & Poor's (S&P) Ratings Services says that although the U.S. apartment sector has experienced a ‘solid recovery,’ delinquencies for multifamily commercial mortgage-backed securities (CMBS) are still near record highs.
S&P, in a new report titled ‘The U.S. Apartment Sector's Recovery Hasn't Trickled Down To Multifamily CMBS,’ notes that the CMBS delinquency rate had declined to 13.58% of the current aggregate outstanding principal balance of multifamily loans in December 2011, down from 15.5% in June 2011. However, it is still well above the rate of 1.1% at the start of the last recession.
In addition, S&P forecasts this will be a ‘big year for multifamily loan maturities, with over $7 billion scheduled to mature. Moreover, approximately $3.8 billion of these maturities are five-year term loans originated in 2007, when underwriting was very aggressive. The recent contraction in commercial real estate lending and investment activity could complicate refinancing of these loans and thereby push multifamily delinquencies up again.’
‘Even though multifamily delinquencies have improved a bit recently, 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,’ says Larry Kay, S&P credit analyst. ‘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.’