Delinquencies on U.S. restaurant mortgages tripled from April to May. From 3.67% in April, U.S. retail establishments’ unpaid commercial mortgages increased to 10.14% in May. Restaurants have been one of the hardest-hit retail industries, with sales dropping as much as 89% during the trough of the pandemic.
A delinquency rate of 1 in 10 marks the worst level recorded since 2009, according to data service Trepp, whose analysts predict even worse numbers for June. Sheltering-in-place and social distancing have decimated revenues of all retail properties, especially restaurants. Restaurant bankruptcy estimates start at 25% and extend to a staggering 80%.
May’s rate of 10.14% retail mortgage delinquency is higher than the average of all property types — 7.4% — which includes office, industrial and apartment complexes. The total market is immense, with bonds worth $1.3 trillion backing $16 trillion of total commercial property value. The total rate of Commercial Mortgage Backed Securities (CMBS) delinquencies over the past twelve months is graphed below.
Borrowers are considered delinquent when they are over 30 days behind on payment. If unpaid mortgages within that 30-day grace period were included, the industry’s delinquency rate of 7.4% would rise to 16%.
Unsurprisingly, there are widespread requests for deferral of rent and mortgage payments among restaurant owners. Second only to labor costs, restaurant owners’ facilities are their next biggest expense. “Restaurants still can’t reopen even at 50 percent capacity,” observes one owner. “They can’t make money and pay rent.” Another restaurant owner agrees, “As small business owners in Northern VA, we’ve had to close our restaurants due to the virus. With no income, we’re in jeopardy of defaulting.”
In many jurisdictions, there are moratoriums on eviction, but few waivers or forbearance. During the trough of the crisis, revenues at restaurants declined -26%, -55%, -61% or even -89%, depending on their location.
If retail mortgages are 10.14% delinquent and rising, that puts restaurants on the path toward the estimated delinquency rate for residential mortgages in the next couple months. According to Associated Press and University of Chicago pollsters, 15% of Americans said between May 14-18 that “because of the coronavirus outbreak” they “have been unable to make a rent or mortgage payment.”
According to Penn Mutual Asset Management’s Head of CMBS, Jennifer Ripper, “It will be a while before we see this trend of rising delinquencies reverse.” The National Restaurant Association estimates that restaurants lost $52 billion in revenue as of April 30. Its economists estimate $240 billion in full year losses for the industry. In total, there have been 1,827,425 confirmed cases of COVID-19 and 106,202 deaths in the U.S. this year.