The effects of COVID-19 are being felt by lenders hoping to collect loan payments as government relief programs near their expiration dates. Lenders began allowing borrowers postpone billions of dollars in loan payments back in March. Many lenders adopted this practice at the request of government regulators and lawmakers who placed moratoriums on both foreclosures and evictions. As forbearance requests from government-controlled mortgage finance companies end, the mounting number of distressed loans is expected to grow.
Loan Delinquency Rates on the Rise
In mid-June, bond rating agencies reported the greatest month-to-month increase in commercial mortgage-backed security (CMBS) loan delinquencies in at least three years. The CMBS loan delinquency currently totals around $36 billion. That number is five times higher than it was before the coronavirus pandemic began sweeping through major metropolitan markets in February.
The Kroll Bond Rating Agency (KBRA) reported another $60 billion on servicers’ watchlists. These loans include those that have experienced the loss of a major tenant and loans that have near-term maturity dates on which borrowers may not have the option of refinancing. On the commercial real estate front, Fitch Ratings recently released current and April delinquency rates. Except for multi-family, all other commercial property types have seen an increase in delinquency rates. Retail property delinquency rates have increased by 3.82 percent, and mixed-use property delinquency rates have increased by just under one percent.
What Happens Next?
The effects of the massive coronavirus relief measures are expected to create operational challenges for banks. According to Fitch Ratings, the asset quality for many U.S. banks is expected to deteriorate as a result of the COVID-19 pandemic. However, it will likely take a few quarters before the true impact to materialize on bank financial statements.
The economy’s overall recovery—and the ability for borrowers to make timely loan payments—will depend on the ability of states to adequately contain COVID-19. A number of states that opted to “open early” are now seeing an increase in the number of coronavirus cases as a result of community spread. These states remained mostly unaffected during the so-called “first wave” of COVID-19. As the number of active cases begins to decline in areas like New York City, COVID-19 infections are on the rise in states like Florida, Arizona, California and the Carolinas.
Navigating These Uncertain Times
Ground + Space is a leading commercial real estate firm that specializes in single-tenant and retail NNN investments. We have several listings available featuring retailers that are in a prime position to succeed in a post-pandemic economy. We are committed to providing up-to-date information and best-in-class services to clients during the COVID-19 pandemic and beyond. The IRS 1031 tax deadline is fast approaching, so please contact one of our brokers for specialized guidance during this time.
Stay Healthy and Safe
The Centers for Disease Control and Prevention (CDC) offers daily updates and other information about COVID-19 symptoms and testing in the United States. Johns Hopkins University (JHU) has created a resource to help inform the public and advance comprehensive understanding of the novel coronavirus and its effects backed by experts in global public health, infectious disease and emergency preparedness. Additionally, the World Health Organization (WHO) continues to track the number and location of confirmed cases of the virus across the globe.