Lodging and retail mortgages showed significant performance improvement in July and while office loan late payments are higher relative to the past, lease structures should mitigate any sector worries, the Mortgage Bankers Association said.
The percentage of commercial and multifamily mortgages that are current rose to its highest level since the start of the pandemic, to 95.5% for July from 95.2% in both
One year ago, 93.8% of all commercial and multifamily loans were current.
The overall loan performance picture needs to be taken in context, said Jamie Woodwell, the MBA's vice president of commercial real estate research.
Lodging and retail "are really still the property types that stand out as having experienced the earliest and most dramatic stress from the pandemic and we're still seeing that primarily in the form of late stage delinquencies as property owners are working with servicers and lenders to sort of figure out what's next for that," Woodwell said. "So compared to those two, just about every other property type has seen much more muted impacts from the pandemic."
The percentage of office property owners late on their payments remains low, but saw a significant increase between May and June of 0.9 percentage points to 3.5%. In July, it dropped back down to 3.2%, but that is still the second-highest share in the single year that the MBA has been tracking this data.
Early stage delinquencies in this segment rose in the past few months, but Woodwell warned against reading too much into that because the reasons for the rise might be as practical as a temporary delay in landlords making the payment.
The office property sector has longer term lease structures, which means impacts from a downturn like one caused by the pandemic are both delayed and muted.
"Unlike the retail and lodging sectors, where you saw the immediate impact of the pandemic flowing through to property and loan performance, for office because of those longer lease structures, it takes longer for some of that stress to show up," he said. "And then that stress is muted because you've got leases that are coming up for renewal spread out over a much longer period."
The pandemic sped up the discussion about
Still, any "changes are spread out over time, which is sort of a calming influence on the performance of the properties and the relatively long term loans that are based on them," he explained.
Lodging loan delinquencies were at 16.5%, compared with 17.6% in June and 26.2% for July 2020, while the percentage of late retail loans fell to 9% from 10% one month prior and 13.9% one year ago.
As for other property types, industrial loan delinquencies were 1.8% in July versus 3.1% in August, while multifamily late payments had a 1.5% share, down from 2.1%.
