Finance  ·  CMBS

CMBS Delinquencies Continue on Downward Path

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The CRED iQ overall delinquency rate for CMBS declined for the 22nd consecutive month with all major property types — retail, hotel, office, multifamily and industrial — exhibiting improvements compared to the prior month,” wrote Marc McDevitt, a senior managing director at CRED iQ.

“The delinquency rate, equal to the percentage of all delinquent specially serviced loans and delinquent non-specially serviced loans, for CRED iQ’s sample universe of $500-plus billion in CMBS conduit and single-asset single-borrower (SASB) loans was 3.84 percent, which compares to the prior month’s rate of 4.02 percent. CRED iQ’s special servicing rate, equal to the percentage of CMBS loans that are with the special servicer (delinquent and non-delinquent), declined month-over month to 6.09 percent from 6.43 percent.

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“A combination of workouts, liquidations, cures and mortgage rehabilitations have enabled the special servicing rate to decline for the fourth month in a row. Aggregating the two indicators of distress — delinquency rate and special servicing rate — into an overall distressed rate (DQ + SS%) equals 6.19 percent of CMBS loans that are specially serviced, delinquent or a combination of both. 

“The overall distressed rate declined compared to the prior month rate of 6.4 percent. The overall distressed rates typically track slightly higher than special servicing rates as most delinquent loans are also with the special servicer.

“Lodging has shown the most improvement in individual delinquency rates by property type with a 46 percent decline over the trailing 12 months. The outstanding balance of delinquent lodging loans decreased by more than $450 million compared to the prior month. 

“The lodging delinquency rate was 7.99 percent this month, which compared to 8.46 percent a month ago and 14.73 percent a year ago. An example of a contribution to the decline in the delinquency rate for lodging was the $75.5 million W Chicago – City Center loan, which was paid current and returned to the master servicer in February after a modification.

“The delinquency rate for office moved nominally to 1.88 percent, compared to 1.89 percent as of February 2022. A subplot to the nominal month-over-month decline is the industry’s anticipation of a special servicing transfer for the $308 million 1740 Broadway loan. 

“Commercial Observer first broke the news of Blackstone handing back the keys to 1740 Broadway in a March 21 article. The property’s largest tenant, L Brands, had a lease expire in March 2022 and the company vacated, relocating to 55 Water Street. The transfer to special servicing was not reflected in the March servicer data; however, a delinquency is possible in the near term given the recent developments with the loan. 

“Adjusting for the potential delinquency of 1740 Broadway would push the office delinquency over 2 percent. 

“Special servicing rates for lodging (12.98 percent), retail (10.9 percent) and multifamily (2.08 percent) declined compared to the prior month. The special servicing rate for the office sector increased to 3.38 percent this month, compared to 3.31 percent last month, and the industrial special servicing rate increased nominally. Special servicing transfers of loans secured by office properties have steadily occurred throughout Q1 2022. Notable transfers for the March 2022 reporting period include The Pinnacle at Bishop’s Woods in the Milwaukee metropolitan statistical area and 300 East Lombard in Baltimore.

“One of the largest loans to transfer to special servicing this month was the $237.2 million Walden Galleria mortgage, which is secured by a 1.5 million-square-foot portion of a super-regional mall in Buffalo, N.Y. The loan is scheduled to mature in May 2022 and the borrower, Pyramid Management Group, has reportedly requested a maturity extension. 

“Despite the special servicing transfer, the mall’s loan remained current in payment. The loan previously transferred to special servicing in April 2020 and subsequently returned to the master servicer in December 2020 after a modification.

“CRED iQ’s overall CMBS distressed rate (DQ + SS%) by property type accounts for loans that qualify for either delinquent or special servicing subsets. This month, distressed rates decreased for all property types. In addition to Walden Galleria, the $80 million Chicago Ridge Mall was also one of the largest loans to transfer to special servicing this month. The Chicago Ridge Mall loan has a near-term maturity date, July 6, 2022, and a timely payoff appears to be unlikely.”