The delinquency rate for US commercial real estate loans in CMBS has been inching upwards but the self-storage sector makes up only a small percentage of those loans, industry experts say.
Overall, the delinquency rate for commercial-backed securities climbed six basis points in in March to 5.37 percent, according to Trepp‘s most recent CMBS Delinquency Report. This marked the eleventh monthly increase in the past 13 months, according to CFO.com.
Trepp’s latest report shows $90.4 billion in outstanding monthly maturities. Self-storage loans – with about $814.8 million set to mature – made up just 0.9 percent of the total with an average delinquency rate of 4.73 percent.
Self-storage’s delinquent loans
This is relatively low compared to other property types. For example, the lodging sector had an outstanding balance of $19.3 billion; the retail sector a balance of $27.6 billion and the office market a balance of $25.5 billion.
In April 2017, about $17 million worth of self-storage loans were delinquent, the research indicated, with nine properties across the country considered delinquent. Those properties included facilities in Las Vegas, NV; Martinsville, VA; Twentynine Palms, CA; Fort Myers, FL and Calera, AL.
There were various reasons for the delinquencies, including not refinancing before the loan matured and payment defaults.
Trepp Research Analyst Sean Barrie says out of all the commercial properties his firm is measuring, self-storage has the second-lowest delinquency rate by property type.
“It’s still performing pretty well,” he said. “The main problem is a lot of loans are maturing without as many new loans coming to market. Plus, refinancings haven’t been as prevalent since 2016 because issuance hasn’t kept up with the pace of the maturation.”
CMBS money available for strong performers
Devin Huber, a principal with The BSC Group, agrees the CMBS market as a whole is extremely liquid right now. Self-storage, though, is not an area of concern with its low delinquency rate and strong cash flow.
“For strong-performing properties such as self-storage, there’s no shortage of capital available to the CMBS market,” he said. “Lenders, given how well storage has performed in the past 10 years, have a high appetite for the sector. They can’t get enough of it.”
Retail – in particular surbaban office, on the other hand, is going through a rough time these days considering that many loans that were underwritten with long interest-only periods to rents that are no longer achievable.
“So when they’ve come back to refinance many of those office retail loans, they get the 80 percent they put up back then,” Huber said. “But self-storage over last 10 years has done the exact opposite.”
Self-storage loans weren’t as aggressively underwritten back then but occupancies have gone from the mid-80s to the low-90s, rental rates are up and cap rates have decreased, according to Huber.
Market as “healthy as it can be”
“Self-storage is as healthy as can be right now, especially as it relates to CMBS delinquency,” he said. “Lenders recognize that.”
Marc Boorstein, a principal of MJ Partners Real Estate Services, agrees there’s been very few problems when it comes to the CMBS market for self-storage.
“Those loans are either getting refinanced or extended,” he said. “We’ve seen very little, if any, problems. But for the new construction loans, we’ll see what happens.”
