Trepp LLC, an analytical research firm, is reporting that U.S. commercial mortgage delinquency rates reached an all time high of 9.88% in July. According to Trepp, this is a new record for the commercial mortgage market.
All of the ratings agencies have been reevaluating their ratings process and making changes. There is some concern that these changes may have a negative impact across the entire CMBS market, especially in light of the new data indicating that commercial delinquencies are trending upwards.
This data may have influenced a decision of Standard and Poor's to downgrade a new CMBS offering planned by Goldman Sachs and Citibank. Goldman and Citibank decided to cancel the offering after the downgrade was issued. Moody's is also reported to be planning a downgrade as well, though it is not clear whether it will target this particular offering or be wider in scope.
Earlier in the year it appeared that the commercial mortgage market might be trending toward a recovery, but now concern is growing over whether commercial borrowers will be able to find financing for mortgages that will be coming due over the next few years. There is a lot of concern that downgrades by Standard and Poor's or Moody's will have a negative impact across the entire CMBS market, though for now, the downgrades have been limited in scope.
There is also speculation that the spike in commercial mortgage delinquencies is a by-product of the downward trend in consumer spending. When consumers don't spend money, small businesses in shopping centers are not able to pay their rent, and many commercial tenants are struggling to generate enough sales to stay in business. This in turn affects the property owners, as it reduces their income from rents, thereby making it more difficult to make mortgage payments on time.
Many shopping centers are owned by smaller investors, rather than large corporations. These small investors do not have large sums of cash on hand to keep up mortgage payments when vacancies in their properties begin to rise. Lots of shopping centers in smaller towns and rural areas have been hard hit by the market downturn, and the decrease in consumer spending has resulted in the loss of tenants.
Smaller shopping center owners are having trouble attracting new tenants, once the vacancies begin to increase. A significant percentage of shopping centers and other types of properties funded by commercial mortgages have been operating well below capacity and lacking tenants for an extended period of time, which may be beginning to put more pressure on cash strapped property owners.