CMBS Distress Inches Up Slightly in July

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“Commercial mortgage-backed securities (CMBS) loans exhibited modest increased distress in July,” wrote Marc McDevitt, a senior managing director at CRED iQ.

“Of the 50 largest metropolitan statistical areas (MSAs) tracked by CRED iQ, there were 33 with month-over-month increases in the percentage of distressed CRE loans within the CMBS universe, a reversal from trends over the past several months when the majority of top markets saw consecutive delinquency improvements. The scale of the distressed rates (delinquencies plus special servicing rate percentage) was relatively modest, however, with the Baltimore MSA (1.38 percent) displaying the highest increase. New Orleans (1.12 percent) was the only other market to exhibit an increase in distress greater than 1 percent in July.

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“Exploring delinquencies by property type, the health care sector for Kansas City, Mo., exhibited the highest increase in distress by market sector with a plus 10.4 percent change compared to June 2022. The increase was led by a $21.2 million floating-rate loan secured by The Atriums, a 207-unit assisted-living facility, which defaulted at maturity on July 1, 2022 and subsequently transferred to special servicing. 

“Additionally, a $25 million loan, secured by two properties in Metairie, La. — Independence Plaza and 3530 Houma Boulevard — became 30 days delinquent in July and contributed to elevated increases in distress with New Orleans’ mixed-use and office sectors.

“Of the largest decreases in distress, the Baltimore mixed-use market sector exhibited the most significant change, which was driven by the resolution of the $67.8 million Gallery at Harborplace loan. The loan failed to pay off at maturity in May 2022, when it contributed to a spike in distress for the Baltimore market. However, the loan appears to have been paid off in full during the July 2022 reporting period, alleviating the temporary increase in distress. 

“On the retail side, a $22.6 million loan for The Forum at Gateways portfolio returned to the master servicer in July, which corresponded with decreases in distress for the Detroit and Jacksonville, Fla., markets. 

“The Minneapolis MSA had the highest overall distressed rate at 20.9 percent, which was an increase compared to the prior month’s distressed rate of 20.1 percent. Milwaukee (10 percent), Hartford, Conn. (9.2 percent), Cleveland (7.6 percent), and Chicago (5.7 percent) comprise the next four markets with the highest rates of distress. 

“Louisville, Ky., dropped out of the top five distressed markets last month after Chicago supplanted it. The Sacramento, Calif., market (0.1 percent) had the lowest percentage of distress among the top 50 MSAs for the fourth consecutive month. The Jacksonville market (0.3 percent) moved into position as the market with the second-lowest percentage of distress.”