Finance  ·  CMBS

Loan Modifications Surged in 2023

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CRED iQ’s research team has been closely monitoring loan modifications during this period of significantly elevated interest rates. As expected, loan modifications surged in 2023 as borrowers worked with lenders to achieve loan extensions and other alterations to loan covenants.  

In fact, the number of modifications in 2023 more than doubled compared to 2022. Of the $162 billion in securitized commercial mortgages that matured in 2023, 542 loans were modified with cumulative balances just over $20 billion, which is a 150 percent increase from the amount of modifications in 2022. 

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According to CRED iQ’s 2024 CRE Maturity Outlook, 2024 will see $210 billion in securitized maturities. CRED iQ predicts that the modification trend will continue to surge as more special servicers decide to “pretend and extend” versus foreclose on these commercial properties.   

For example, within the office sector only 26 percent of the $35.8 billion of office CMBS loans that matured in 2023 was actually paid off in full, as borrowers struggled to get refinancing or to sell their properties. Out of 593 fully serviced office loans that transferred to the special servicer since February 2022 analyzed by CRED iQ, roughly 13.7 percent were modified, 14 percent were returned to the master servicer as corrected, 8.4 percent were paid off, and the remaining 63.9 percent are still with the special servicer.

Extending the loan term was the most popular modification type in 2023 and has been so far in 2024 (excluding grouping categories “other” and “combination”). By deal type, commercial real estate collateralized loan obligation (CLO) transactions led all categories and comprised nearly half of all loan modifications, followed by single-borrower large loan deals. 

Among the largest loan modifications thus far in 2024:

One Market Plaza, a 1.6 million-square-foot office building in the South Financial District of San Francisco, is backed by a $850 million loan (originally $975 million). The loan was modified in February 2024 to extend the maturity to February 2026, a two-year extension from the original maturity. In addition to a maturity extension, a forbearance period was entered as part of the loan modification process, resulting in a $125 million principal paydown in February 2024 plus $59 million in additional payments for closing costs, tenant improvements, leasing commissions, and escrow and interest. 

Herald Center, a 249,063-square-foot retail and office building in the Chelsea submarket of New York City is backed by a $255 million loan. The loan was modified and transferred to the special servicer in January 2024 due to maturity default. The maturity of the loan was extended to January 2025. 

Mike Haas is the founder and CEO of CRED iQ.