Private-label CMBS holds half of delinquent multifamily debt, Trepp finds

Private-label CMBS accounted for 50.2% of delinquent securitized multifamily debt as of August despite holding 12% of the outstanding balance, Trepp reported.

The delinquent pool totaled $11.6 billion against a $635.82 billion tracked universe. Private-label deals hold $75.48 billion of that multifamily debt and run a 7.69% delinquency rate, or $5.8 billion, according to Trepp's Stephen Buschborn. Connect CRE reported the figures.

Freddie Mac holds $518.99 billion outstanding, 82% of the tracked universe, a 0.80% delinquency rate and $4.2 billion delinquent, or 35.9% of the total. Freddie's book is nearly seven times the size of the private-label book, and its delinquent dollars are $1.6 billion smaller.

CRE CLOs, which mostly pool floating-rate transitional loans, hold $41.3 billion at a 3.88% rate, or $1.6 billion, equal to 13.9% of delinquent debt.

Trepp's Buschborn wrote that two years ago CRE CLOs accounted for about 40% of the delinquent debt, Freddie held 32% and private-label accounted for the smallest share at 27%.

On those figures, private-label's share has roughly doubled to 50.2% while the CLO share has fallen by about two-thirds.

Part of the CLO decline is presentational, by Trepp's own account. CLO managers may remove defaulted or otherwise credit-impaired loans from transaction pools, and Buschborn wrote that the $1.6 billion of delinquent loans in the $41.3 billion CLO universe "may understate the level of distress among loans that have passed through those transactions."

That caveat runs through the whole composition table. A loan pulled from a CLO pool leaves the numerator as well as the denominator, which mechanically lifts the private-label and Freddie shares of what remains. The $5.8 billion of delinquent private-label debt is measured directly; its 50.2% share of the total is not, because the denominator moves when loans exit CLO pools.

The rate gap is the cleaner lender-level read: private-label's 7.69% delinquency rate is roughly nine and a half times Freddie's 0.80%. As this publication has argued, agency execution has been the escape valve for clean apartment collateral while the rest of the stack works through extensions and rescue capital. Trepp figures fit that pattern: Freddie is 82% of the tracked universe yet contributes 35.9% of delinquencies.