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

Private-label CMBS held $5.8 billion, or 50.2%, of the $11.6 billion of securitized multifamily loans delinquent in August, Trepp reports.

Freddie Mac holds $518.99 billion of apartment debt, 82% of the universe Trepp tracks, and its 0.80% delinquency rate leaves $4.2 billion delinquent, or 35.9% of the total. CRE CLOs, which pool floating-rate transitional loans, carry $41.3 billion at a 3.88% rate, or $1.6 billion delinquent, 13.9% of the total.

Two years earlier the ranking was reversed: CRE CLOs held the largest share of delinquent multifamily debt at about 40%, Freddie Mac 32% and private-label CMBS 27%. Trepp points to changes in the composition of the outstanding loans as context for the shift.

CRE CLO managers can pull defaulted or credit-impaired loans from their pools, so Trepp says the $1.6 billion of reported CLO delinquency may understate distress in those deals. Managers aren't necessarily required to remove impaired loans, but Trepp notes they are incentivized to: a failed overcollateralization test can divert cash that would otherwise reach equity holders and certain subordinate noteholders toward paying down senior notes.

Over the two years, total CRE CLO debt fell to $41.3 billion from $46.8 billion. Debt tied to pre-1980 buildings fell to $6.8 billion from $16.2 billion, while debt tied to buildings completed in 2000 or later rose to $28.5 billion from $19.2 billion. Private-label debt backed by pre-1980 buildings moved the other way, to $29.1 billion from $20.4 billion.

MBA data put Freddie Mac's multifamily delinquency rate at a 20-year high of 0.64% in early October, with Fannie Mae at 0.57%, according to this publication's records. Trepp's 0.80% figure for Freddie comes from a different series, so the two readings aren't directly comparable. MBA's broader CMBS delinquency series was 6.53% in its latest reading, down 42 basis points, though that measure spans property types.

Six in ten community banks were running off multifamily loans in the second quarter, as this publication reported in August. If that retreat continues, the securitized and private-credit channels absorb more of the apartment maturity wall.