CRE Loan Modifications, Foreclosures Continue to Increase
This week, our CRED iQ research team explored trends in workouts and resolutions for commercial real estate securitized loans so far in 2024. This analysis included the workout strategies across commercial mortgage-backed securities, single-borrower large loans, collateralized loan obligations and Freddie Mac loans.
Building upon our August report, our analysis compared the special servicer’s workout strategies from January 2024 with August 2024. Our previous report explored the period of December of 2023 to June 2024.
Our analysis compared workout strategies across $64.3 billion in loan balances (5,488 loans) in January of 2024 with $156.2 billion (6,351 loans) in August of 2024. The top four workout strategies used by special servicers from this data set include successful resolution, foreclosure, modification and real estate owned (REO) by the special servicer.
Perhaps the most striking metric is the January-through-August growth in full payoffs. From under $1 billion in January to $11 billion in August — full payoffs saw a massive 1,548.3 percent increase.
As we compare January data to the August data in other categories, maturity extensions and loan modifications, the so-called “extend and pretend” category, continued to grow — rising 326.9 percent to $16.7 billion.
Foreclosures grew 272.6 percent in the period — reaching $19.2 billion in August.
After seeing a drop in REO in last month’s print (December 2023-June 2024 evaluation period), REO notched a 22 percent increase in this analysis, as July and August offset the previous drop.
Considering that resolved loans nearly doubled in the period (92.3 percent) to $55.9 billion while the full payoff category saw such explosive growth (1,548.3 percent) to $11 billion, there are positive trends represented in this analysis.
Notable workout example
The Coastland Center, a 468,926-square- foot regional mall in Naples, Fla., is backed by a $96 million conduit loan. The loan transferred to the special servicer in July 2024 due to the upcoming August 2024 maturity date. Servicer commentary indicates a forbearance agreement was executed extending the maturity to May 2025.
Built in 1977 and renovated in 2007, the mall was appraised for $233 million ($508 a square foot) at origination in October 2012. The value of the asset has since decreased by 66.8 percent in February 2024 when it was appraised at $77.4 million ($169 a square foot). Coastland Center had a debt service coverage ratio of 1.14 and was 96 percent occupied as of March of this year.
Mike Haas is the founder and CEO of CRED iQ
