CMBS Delinquency Rate Has Jumped 56 Percent Since January
The CRED iQ CMBS delinquency rate has continued to rise, reaching 5.07 percent in August 2023 to mark a 40 basis point increase from a month prior and a 177 basis point jump since January. Notably, 62 percent of the newly delinquent loans, based on their outstanding balances, were a result of maturity defaults or refinancing challenges.
CRED iQ’s special servicing rate, equal to the percentage of CMBS loans that are with the special servicer (delinquent or non-delinquent), increased modestly month-over-month to 6.73 percent, from 6.72 percent.
The special servicing rate has continued to climb year to date in 2023. Aggregating the two indicators of distress — delinquency rate and special servicing rate — the overall distressed rate (delinquency plus special servicing percent) rose to 7.17 percent, an increase of 14 basis points.
The August distressed rate was equal to 7.03 percent, which was 14 basis points lower than the July distressed rate. The month-over-month increase in the overall distressed rate mirrors increases in the delinquency and special servicing rates. Distressed rates generally track slightly higher than special servicing rates as most delinquent loans are also with the special servicer.
By property type, distress in the office sector continued to build in August. The office distressed rate for August was 9.36 percent, which compared to 8 percent in July. The month-over-month surge of 136 basis points in office delinquency was equal to a 17 percent increase. The natural progression of long- to intermediate-term rolling leases coupled with ongoing refinancing difficulties at loan maturity have caused the velocity of new delinquencies to accelerate during 2023.
An example of why office delinquency rates have gone up significantly per month can be seen with 995 Market Street in San Francisco, which was part of the LSTR 2016-4 transaction and had a balance of $45 million. On July 21, it was transferred to special servicing and it is currently 30 to 59 days behind in payments. The special servicer reports that the borrower hasn’t paid for July and has indicated they won’t make any more payments.
Unfortunately, the situation with 995 Market Street is likely to continue nationally as office vacancies increase and net absorption (the rate at which office space is being occupied) continues to decline.
The retail distressed rates decreased slightly in August from 10.74 percent in July to 10.66 percent in August, an 8 basis point drop. The multifamily distressed rate increased slightly, rising by 31 basis points to reach 4.96 percent in August.
The lodging distressed rate improved slightly in August, dropping by 6 basis points to 7.69 percent. This improvement is due to increased business and leisure travel, which has now surpassed pre-pandemic levels.
CRED iQ’s CMBS distressed rate by property type accounts for loans that qualify for either delinquent or special servicing subsets. For August, the overall distressed rate for CMBS increased to 6.56 percent, which was 13 basis points higher than May’s distressed rate (6.43 percent), equal to a 2 percent increase. A severely limited refinancing market for office properties and a “higher for longer” interest rate environment continues to contribute to sustained increases in commercial real estate distress.
It’s important to clarify that the delinquency rate is calculated as the percentage of all delinquent loans, whether specially serviced or non-specially serviced, in CRED iQ’s sample universe of more than $600 billion in CMBS conduit and single-asset single-borrower loans.
Harry Blanchard is managing director and head of data and analytics at CRED iQ.