CMBS delinquency rate falls following surge in development

The commercial real estate sector has been a symbol of prosperity in a struggling economy, and continued to make significant gains so far this year.

The commercial real estate sector has been a symbol of prosperity in a struggling economy, and continued to make significant gains so far this year.

Late payments on commercial mortgage-backed securities plummeted to 8.48 percent in July from 8.62 percent a month earlier, according to a report from Fitch Ratings. The decline was attributed to the successful modification of numerous multimillion-dollar loans.

July marked the second straight month of the falling delinquency rate. Specifically, the office CMBS sector was believed to have bolstered the overall improvement. This offset an increase in late payments among securities pertinent to hotels, which rose 24 basis point after several months of declines.  

"Delinquencies on office properties enjoyed a bit of a reprieve this past month, though it is not likely to last," said Fitch Ratings managing director Mary MacNeill.

Specifically, 42 major office loans totaling an estimated $512 million returned to performing status. In contrast, the hotel sector saw 11 significant loans totaling $280 million fall into delinquency.

However, these weren't the only areas that experienced shifts. In addition, late payments on industrial CMBS loans dipped to 9.68 percent from 9.93 percent the previous month, the report said.

Multifamily sector experiences major changes

Meanwhile, the multifamily CMBS delinquency rate fell to 10.89 percent from 11.64 percent on a month-over-month basis. Uncertainties among developers of single-family homes caused a positive shift toward multifamily properties after the market's collapse. Following the financial shock, many Americans were forced into the rental market, while those who could buy property opted for smaller units because of their affordable prices.

As a result of this change, property data indicates developers continued to buy up multifamily development sites across the country during the first half of 2012.

"The market is heating up quickly with developers acquiring over $2 billion of significant multifamily development sites in the first half of 2012 - almost double the volume for all of last year and on track to reach peak levels soon," experts from RCA Analytics said.

This surge in demand has caused the average nationwide price of development sites to make its way back toward peak levels after significant declines following the real estate bubble burst. During the first six months of the year, prices averaged $66,000 per buildable unit, which was nearly twice the value reported in 2009, but is still below the average peak price of $100,000.



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