Commercial Mortgage Backed Securities (CMBS) report an increase of 317 basis points in delinquencies to 10.32% in June. This is close to the all-time high of 10.34% of delinquency in July 2012. This number could go even higher in July as another 4.1% of the commercial loans were over 10 days delinquent but were less than 30 days late at the end of June. Trepp, the leading provider of analytics to the CMBS market is reporting we may have reached the terminal delinquency velocity which means most of the borrowers that needed relief for debt service have requested it. This points that the delinquency rate may trend smaller as we progress to the later summer and early fall.
The watchlist of problem loans grew to 20.9% at the end of June. Hospitality lead the way with 20.5% of all lodging loans on the watch list followed by 14.3% of retail loans. Percentage of problem loans over 60 days late is up to 6.25% which is up 408 basis points from last month. Loans from 31 to 60 days late were at 4.07%. If you were to add in all loans in defeasment state to this, the total in the 31-60-day category would be 10.88%
The best performing sector in terms of lowest delinquency was industrial properties at 1.57%. Office was next with a 2.66% past due rate and multifamily ended with a 3.29% past due rate. Retail properties in the CMBS market had a 18.07% delinquency and 24.30% of all hospitality loans were delinquent.
Clearly, the pressure on commercial real estate is real and still weighs in the market. This next quarter should be key as PPP loan funds should be spent. Economic activity should pick up, but growth may be dampened in some areas if local or state authorities shut down portions of their jurisdictions if they see increases in the virus.
Managing a problem commercial or agricultural loan is a challenge and can be quite stressful. Many institutions do not have the proper staffing or skill set to work through these issues easily. If yours is one of those, contact us. The lending professionals at Pactola in our Problem Loan Management area are here to help.
PPP Reopens
Congress passed and President Trump signed an extension for the PPP program as there is nearly $130 billion that has not been spent. This may help some institutions which have not been able to gather their funds for these loans, to now be able to find some help with their cash flow. These loans turn into a grant, if funds are spent according to the program.
Many of your lenders are now receiving questions about PPP forgiveness. I would suggest telling your borrowing folks to be patient. As I write, the reporting structure to the SBA has not been well defined and it is unknown how the lender will request for the loan forgiveness.
The SBA has shortened their forgiveness form from 5 pages to 3. There is talk in Congress to shorten the forgiveness app for loans under $150,000 into a one-page application that may not even have the requirement of supporting documents. This may greatly reduce the workload for the majority of the applications that your institution processed.
Independence Day
July 4th represented the 244th celebration of the birth of our country. Here in the Black Hills, we are both proud and thankful to host President Trump and hear his speech at Mount Rushmore. Our nation is founded on the rights of life, liberty, and the pursuit of happiness which are given to all individuals, not by a government, but by their Creator. Government exists to rule by the consent of the governed.
This year, I am sure many of you, like me have found this to be one of the oddest years yet. This includes some of the events leading up to our Independence Day. We have not been perfect in our past history, and all people have a selfish streak in them. This year is not a time to self-righteously condemn the people of the past, but to be thankful of the progress we have made toward a more perfect union today and to realize that the best way we can grow in the future is under our present framework of self-government.