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Distress Metrics Improve for Retail-Backed CMBS
Although delinquencies for CMBS backed by retail loans reached heights that were exceeded only by those of the lodging sector during the pandemic, since then retail CMBS has improved in a number of metrics, reported Trepp. March’s overall decline in the CMBS delinquency rate was led by retail, which saw a 47-basis-point decrease to 5.56%.
“This comes even as the outstanding balance of retail loans has remained relatively flat, indicating resilience in issuance amid softening performance,” wrote Trepp’s Thomas Taylor.
In mid-2020, the percentage of retail-backed CMBS loans reached 28.8%, compared to the pandemic-era peak of 25.7% for all loans. As of March 2024, 24.9% of all loans are on watchlists, up 199 bps month-over-month, compared to 19.6% of retail loans, which saw a 22-bp monthly increase.
“As of March 2024, retail remains the second-worst performing asset by delinquency and special servicing rate (only outpaced by office in both), while it boasts the lowest watchlist rate,” wrote Taylor. Driving retail’s overall performance in delinquency and special servicing are loans backed by regional malls, while loans tied to superregional, neighborhood and community shopping centers are performing relatively well.
However, Taylor reported, “retail’s distress metrics continue to improve monthly,” with delinquencies down 129 bps year-to-date, and it remains the third-largest securitized asset class by balance. It’s topped only by office and multifamily, both of which are seeing worsening distress metrics, with delinquencies up by 482 bps and 227 bps YTD, respectively.
