What Triggered Watchlist CRE Loans in the First Half of 2023
CRED iQ recently examined loans that were added to our commercial real estate loan watchlist, based on loan and property data, to understand factors that led to this designation. In 2023, the year-to-date count of loans on the servicer watchlist has reached approximately 12,000 loans.
In the reporting month of July, CRED iQ identified just over 4,600 loans recently added to the watchlist. Of those loans, we found that 36.5 percent of all watchlist loans were attributable to debt service coverage ratio (DSCR) triggers for both fixed-rate and floating-rate debt.
Breaking the data down further, we found that loans with pending maturities or an anticipated repayment date represented 13.5 percent of the loans on the watchlist — an increase of 4.5 percent compared with all watchlist accounts in our database. Then, properties with occupancy decreases (excluding lodging) accounted for 9.5 percent of loans added to the watchlist in 2023 — surprisingly a slight decrease against the overall watchlist factor of 11.7 percent. In the same vein, major tenant lease expirations contributed to 2.3 percent of this year’s watchlist loans — a fractional increase of 0.3 percent when compared with the complete universe of watchlist filings.
One recent example of a high-profile loan added to the watchlist is 1166 Avenue of the Americas, a 195,375-square-foot office tower in Manhattan that is encumbered by $130 million in debt. The loan was recently added to the watchlist, according to CRED iQ data, due to its largest tenants vacating.
D.E. Shaw — the property’s biggest tenant, which occupies 44 percent of the gross leasable area (GLA) — will be leaving shortly as well. Bloomberg reported last September that the hedge fund titan will be moving its headquarters to Two Manhattan West next year. Arcesium, which is 20 percent of GLA, is also actively looking for new office space as its lease expires in June 2024. The loss of those two tenants could reduce the building’s total revenue by $8 to $9 million, which will negatively impact its DSCR.
The watchlist is a specialized designation that tracks and monitors properties and loans that are experiencing delinquency or nonpayment of their financial obligations. This watchlist is particularly relevant for lenders, investors and real estate professionals who want to keep a close eye on the performance of commercial real estate loans and identify potential risks in their portfolios.
Mike Haas is the founder and CEO of CRED iQ.