Troubled CMBS Loan Count Drops

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Wall Street Journal
By Eliot Brown

The delinquency rate for commercial mortgage-backed securities fell for the second straight month in June, reversing a long climb that accompanied the economic downturn. The delinquency rate for June stood at 9.37%, down from 9.6% in May and a record high of 9.65% in April, according to loan research service Trepp LLC.

The decline comes in large part as special servicers—the firms that work out troubled loans—have been working through a backlog, stepping up the pace at which they sell off mortgages. In all, $1.8 billion CMBS loans were liquidated in June, according to Trepp, the highest in at least 18 months.

What explains the pickup? Analysts at Barclays Capital point to the thaw in the lending sector, as banks are once again willing to lend money for a wide array of commercial property, although generally on less liberal terms than they did in 2006 and 2007.

“We believe much of the current spurt in liquidations stems from a favorable lending environment coupled with low interest rates and low cap rates,” Barclays analysts wrote. “As a result, many assets that had been sitting on special servicing books for years and were hard to sell even a year ago are now being disposed of.”