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Cumulative Loan Default Rate Hit New Peak in 2020

The 2020 cumulative default rate for CMBS reached 18.2% in 2020, exceeding its prior peak of 16.8% as the coronavirus pandemic weighed heavily on the commercial mortgage sector, Fitch Ratings reported Monday. Not surprisingly, hotels and retail loans experienced the largest share of defaults as the increase was the largest since rising to 3.8% from 0.8% in 2009.

The total annual default rate for 2020 was 3.3%, up from 0.3% in 2019. This was due to a spike in defaults stemming from the shutdowns as a result of the coronavirus pandemic, which also led to a slowdown in issuance.

Fitch tracked 555 loans with an issuance balance of $16.8 billion that were granted consent agreements in 2020. The vast majority were in payment forbearance/deferment to provide relief from performance challenges stemming from the pandemic. In 2020, 18 loans with an issuance balance of $1.8 billion were modified, compared to eight loans in 2019 with an issuance balance of $318.4 million.

Although hotels represented one of the largest shares of defaults in 2020, Fitch expects this property type to begin a quicker recovery as vaccines roll out, mitigation efforts are eased and travel picks up again, especially to drive-to destinations. Fitch said it expects retail defaults to continue into 2021 as the onset of the pandemic further stresses an industry already in the midst of a secular shift.

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About Paul Bubny

Paul Bubny serves as Senior Content Director for Connect Commercial Real Estate, a role to which he brings 13-plus years’ experience covering the commercial real estate industry and 30-plus years in business-to-business journalism. In this capacity, he oversees daily operations while also reporting on both local/regional markets and national trends, covering individual transactions across all property types, as well as delving into broader subject matter. He produces 15-20 daily news stories per day and works with the Connect team and clients to develop longer-form content, ranging from Q&As to thought-leadership pieces. Prior to joining Connect, Paul was Managing Editor for both Real Estate Forum and GlobeSt.com at American Lawyer Media, where he oversaw operations at both publications while also producing daily news and feature-length articles. His tenure in B2B publishing stretches back into the print era, and he has served as Editor in Chief on four national trade publications. Since 1999, Paul has volunteered as the newsletter editor of passenger rail advocacy groups (one national, one local).

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