CMBS Delinquency Rate Drops in January
The CRED iQ delinquency rate for CMBS started 2023 with a downswing compared to the previous month.
The delinquency rate for the January 2023 reporting period was 3.25 percent, which was approximately a 7 percent decline compared to 3.4 percent as of December 2022. This metric is equal to the percentage of all delinquent specially serviced loans and delinquent non-specially serviced loans for CRED iQ’s sample universe of more than $600 billion in CMBS conduit and single asset single-borrower loans.
CRED iQ’s special servicing rate — equal to the percentage of CMBS loans that are with the special servicer (delinquent and nondelinquent) — also declined month-over-month to 4.71 percent from 5.16 percent. Aggregating the two indicators of distress — delinquency rate and special servicing rate — into an overall distressed rate equates to 4.84 percent of CMBS loans that are specially serviced, delinquent or a combination of both.
In parallel with the delinquency rate and special servicing rate, the overall distressed rate decreased compared to the prior month’s distressed rate of 5.33 percent. Distressed rates generally track slightly higher than special servicing rates as most delinquent loans are also with the special servicer.
By property type, loans secured by office properties exhibited the sharpest jump in delinquency. The delinquency rate for office increased to 2.16 percent, compared to 1.76 percent as of December. The surge was equal to a 23 percent month-over-month increase.
Office delinquency as of January is at its highest level over the past 12 months. One of the largest loans to become delinquent last month was a $120 million mortgage secured by Charlotte Plaza, a 632,283-square-foot office tower in Charlotte, N.C. The loan defaulted at maturity in January 2023 after multiple years of occupancy struggles.
Retail maintained its position as the property type with the highest delinquency rate, equal to 7.43 percent as of January. The delinquency rate for lodging was second-highest, equal to 4.32 percent.
Both retail and lodging delinquency rates exhibited month-over-month declines. The delinquency rate for multifamily (1.87 percent) declined compared to December while the delinquency rate for industrial (0.38 percent) increased modestly.
Focusing on special servicing rates by property type, loans secured by office (4.24 percent) exhibited the largest month-over-month increase among all property types. As of January, the special servicing rate for office was at a 12-month high. The sharp increase in the percentage of specially serviced loans was driven by a $277.1 million senior floating-rate mortgage secured by the Wells Fargo Center, a 52-story, 1.2 million-square-foot office tower in Denver.
The Denver loan had an initial maturity date in December 2021, but the borrower exercised one of its three one-year extension options at the time, which pushed maturity to December 2022. The extended December 2022 maturity date was synchronous with the expiration of an interest rate cap agreement.
The interest rate expiration may have contributed to the borrower’s decision not to move forward with a second maturity extension given the relatively high costs of one in a rising rate environment. The loan went into maturity default in December 2022 and transferred to special servicing. This marks the second consecutive month with a high-profile maturity default reported for a loan secured by a Denver office tower after CRED iQ’s December Delinquency Report detailed the special servicing transfer of Republic Plaza, which was also caused by maturity default.
The special servicing rates for multifamily (2.68 percent) and industrial (0.41 percent) increased in January compared to December. Retail (10.99 percent) and lodging (5.47 percent) exhibited declines in respective percentages of specially serviced loans.
CRED iQ’s CMBS distressed rate by property type accounts for loans that qualify for either delinquent or special servicing subsets. In January, the overall distressed rate for CMBS declined to 4.71 percent, which was aided by lower distress in lodging and retail. However, the distressed rate for office increased by 14 percent to 4.37 percent for January following the aforementioned maturity defaults of loans secured by Charlotte Plaza and Wells Fargo Center.
Marc McDevitt is a senior managing director at analytics platform CRED iQ.