Before the pandemic, the sub-components of CMBS traded as one asset class where delinquency rates would move up and down in sync with the business cycle.
Since the pandemic and after the Fed started raising rates, there has been significant differentiation between different types of commercial real estate, with delinquency rates for office and regional malls rising, delinquency rates for hotels first going up and then down, and the delinquency rate for retail settling at a permanently higher level, see chart below.
The bottom line is that after the pandemic, active credit selection has become key for investors in CMBS and CRE more broadly.
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