CMBS Delinquency Rate Increases in March

CRED iQ’s special servicing rate, equal to the percentage of CMBS loans that are with the special servicer (delinquent and non-delinquent), also increased month-over-month to 5.53 percent from 5.10 percent. The special servicing rate increased by approximately 40 basis points in each of the two preceding months. Aggregating the two indicators of distress — delinquency rate and special servicing rate — into an overall distressed rate (delinquency plus special servicing percent) equals 5.73 percent of CMBS loans that are specially serviced, delinquent, or a combination of both.

In parallel with delinquency and special servicing rates, the overall distressed rate increased compared to the prior month’s distressed rate of 5.29 percent. Distressed rates generally track slightly higher than special servicing rates as most delinquent loans are also with the special servicer.

By property type, focus will naturally narrow on the delinquency rate for the office sector given the headwinds the property type is facing. The delinquency rate for loans secured by office properties increased to 3.09 percent as of March, which was 78 basis points higher than February and represented a 34 percent month-over-month increase. The office delinquency rate has increased for four consecutive months and is at its highest level since 2020, when CRED iQ started tracking delinquency rates.

Major delinquencies continue to stress the office landscape. February was headlined by Columbia Property Trust’s default on $1.7 billion in mortgage debt secured by seven office properties in New York, San Francisco, Boston and Jersey City, N.J. 

Among last month’s newly delinquent office loans was a $350 million floating-rate mortgage secured by the Gas Company Tower in Los Angeles. The loan defaulted at maturity in February and subsequently transferred to special servicing. Its credit issues included additional leverage from $115 million in mezzanine debt and an interest rate cap agreement that expired in February. 

Additionally, reported occupancy for the DTLA office tower in Los Angeles was 73 percent, adding to the recipe of distress. Delinquency rates for retail (7.86 percent), lodging (4.58 percent), office (3.09 percent) and multifamily (3.04 percent) all exhibited month-over-month increases. The delinquency rates for industrial (0.33 percent) and self-storage (0.05 percent) were relatively unchanged compared to February.

Pivoting to special servicing rates, all property types besides self-storage exhibited month-over-month increases in the percentage of loans transferred to the special servicer. The retail sector has the highest specially serviced rate among all property types at 11.25 percent. 

The elevated special servicing rate for retail properties continues to be anchored by regional malls. A $242.2 million mortgage secured by a 780,000 square-foot portion of the Fair Oaks Mall in Fairfax, Va., transferred to special servicing in late February due to anticipated maturity default ahead of the loan’s May 2023 maturity date. Similarly, a $300 million mortgage secured by the 1 million-square-foot Bergen Town Center transferred to special servicing in March ahead of its May 2023 maturity date. 

Given the current refinancing environment, workouts for both loans may benefit from relief in the form of extension or modifications. 

Aside from retail, the special servicing rate for lodging came in at 6.1 percent, a modest increase compared to February. The special servicing rate for offices surged to 4.97 percent, representing a 19 percent month-over-month increase. Multifamily (3.78 percent) and industrial (0.43 percent) servicing rates also increased. Special servicing inventory for loans secured by self-storage properties has been negligible for the past two months.

CRED iQ’s CMBS distressed rate by property type accounts for loans that qualify for either delinquent or special servicing subsets. In March, the overall distressed rate for CMBS increased to 5.73 percent. The increase was 44 basis points higher than February’s distressed rate (5.29 percent), equal to an 8 percent increase. 

Although all property types experienced higher distress in March compared to February, the office sector was the biggest driver behind the change. Lastly, the spread between the overall delinquency rate and the special servicing rate increased in March, indicating that many loans were transferred to special servicing preemptively prior to payment default or delinquency. This spread has the potential to tighten as special servicing loans that are current in payments deteriorate in payment status as workouts are prolonged.

Marc McDevitt is a senior managing director at data analytics firm CRED iQ.