Finance  ·  CMBS

CMBS Distress Rate Rises in January With Office Back Above 10 Percent

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The CRED iQ overall distress rate for commercial mortgage-backed securities increased by 22 basis points in January to 7.39 percent from 7.17 percent, snapping a two-month streak of declines. 

The office segment added 55 basis points in January following a 315-point increase in December. Office has now crested over 10 percent in overall distress for the first time since October. 

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Meanwhile, multifamily, retail and hotel sectors all saw decreases in the January numbers.

CRED iQ’s overall distress rate aggregates the two indicators of distress – delinquency rate and special servicing rate – into an overall distressed rate.  This includes any loan with a payment status of 30-plus days or worse, any loan actively with the special servicer, and includes nonperforming and performing loans that have failed to pay off at maturity.    

The CRED iQ delinquency rate rose in parallel with the overall distress rate, adding 23 basis points, while the specially serviced rate shaved off 5 basis points.    

The self-storage segment, which has spent most of the past 12 months under 1.0 percent in overall distress, saw its overall distress level skyrocket in January. Most of this is attributable to a $2.1 billion loan backed by a 112,084 square-foot portfolio consisting of 16 self-storage properties throughout New York City.

The New York City self-storage loan passed its Jan. 9, 2024, maturity date, but continues to perform. It was added to the servicer’s watchlist in December due to upcoming maturity. Servicer commentary indicates the borrower’s request for a maturity extension is being reviewed.

Office remains the segment with the consistently highest percentage of overall distress at 10.50 percent (excluding this month’s self-storage spike, which we expect to come down to below 1.0 percent). 

Additionally, One Market Plaza, a 1.6 million-square-foot office tower in San Francisco, is backed by a $975 million loan that was transferred to the special servicer in January due to its Feb. 6, 2024, maturity. Servicer commentary indicates the borrower is discussing a potential extension. The property was 95.8 percent occupied as of September 2023 with Google the largest tenant at a 21.6 percent gross leasable area.

The industrial segment, once again, saw the greatest decrease in overall delinquency — dropping 24 basis points in January following a whopping 3.8 percent reduction in December. We discussed the anomalies in the industrial data in October and November as largely attributable to the $2.2 billion industrial portfolio (BX Trust 2021-ACNT) that failed to pay off on its initial Nov. 9, 2023, maturity date. With the loan now listed as current by its servicer, KeyBank, the industrial sector settles back to familiar territory with 0.32 percent overall distress.    

Mike Haas is the founder and CEO of CRED iQ.