CMBS Delinquencies Jump in September
The CRED iQ delinquency rate has continued to rise, reaching 5.19 percent in September, which represented a 12 basis point (0.12 percent) increase from August. Notably, 62 percent of the newly delinquent loans in September were a result of maturity defaults or refinancing challenges.
The delinquency rate is calculated as the percentage of all delinquent loans, whether specially serviced or non-specially serviced. CRED iQ’s special servicing rate, equal to the percentage of CMBS loans that are with the special servicer (delinquent or non-delinquent), increased month-over-month to 6.83 percent, from 6.73 percent.
The special servicing rate has continued to climb in 2023. The combined special servicing and delinquency rates marked a 7.43 percent overall distressed rate of CMBS loans, which was an increase of 26 basis points (3.6 percent) from August.
The month-over-month increase in the overall distressed rate mirrored 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.
Breakdown by property type
Distress in the office sector continued to build in September to 10.75 percent, which compared to 9.36 percent in August.
The month-over-month surge of 139 basis points in office delinquency was equal to a 15 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.
In September, distressed rates for non-office properties showed the following changes:
• The retail distressed rate increased from 10.66 percent in August to 11.18 percent in September, a 52 basis point increase.
• The multifamily distressed rate decreased slightly, falling by 30 basis points to reach 4.66 percent in September.
• Lodging’s distressed rate increased in September, rising by 64 basis points to 8.34 percent.
The 2023 year-to-date increase in the overall distressed rate has seen a rise of 54 percent. 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.
Market sentiment seems to be consistent whereby the CRE market will continue to see distress given the current interest rate environment and the wave of upcoming loan maturities, particularly in the floating-rate loan market. The CRED iQ September delinquency rate has risen to levels we have not seen since the 2021 third quarter.
Harry Blanchard is managing director and head of data and analytics at CRED iQ.