Special Servicing Rates Increase Due to More Office, Retail Transfers: Trepp
The national office special servicing rate stands at 16%, a 25-year high, and is up more than 600 basis points from 12 months ago
By Brian Pascus March 13, 2025 3:01 pm
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After a one-month decline, commercial mortgage-backed securities (CMBS) special servicing transfer rates ticked up again in February, driven by increases in office and retail maturity defaults, giving investors pause on the health of CMBS financing after a huge resurgence in 2024.
A February 2025 CMBS special servicing report from Trepp found that, after declining for the first time in over a year, the rate of all commercial real estate property types in special servicing rose from 9.87 percent in January to 10.32 percent in February. All told, the special servicing rate for CRE properties has jumped up from 7.14 percent 12 months ago, and from 8.46 percent in August 2024.
Trepp analysts said that the increase in special servicing was driven by the net balance of loans in special servicing increasing by $1.8 billion, and the overall balance of outstanding loans falling by $8.8 billion.
“A comparatively larger numerator divided by a comparatively smaller denominator led to the substantial jump in the monthly rate,” according to the Trepp report. “This jump followed the rate’s slight decline in January, which was its first drop in over a year.”
But the increase of retail and office special servicing transfers are the true culprit for the uptick. Retail special servicing transfers rose 109 basis points and office transfers rose 59 basis points over the past month.
Today, the office special servicing rate stands at 16.19 percent, a 25-year high, and is up more than 600 basis points from the 10.04 percent rate it carried in February 2024. Retail special servicing sits at 11.26 percent, a little less than 200 basis points up from the 9.81 percent rate it held one year ago.
Trepp noted that the transfer of individual office and retail assets carrying substantial debt and facing imminent maturity defaults has contributed to the increase in the February 2025 rate.
Last month saw the $1.3 billion CMBS loan secured by Willis Tower in Chicago — once the world’s tallest building — transfer due to an imminent maturity default, and the $137.8 million CMBS loan secured by Altamonte Mall, a 1.6 million-square-foot regional shopping center in the Orlando suburbs, transfer as well.
It’s unclear whether an uptick in special servicing transfers will dampen investor sentiment for CMBS issuance, which has surged in the last year. Single-asset, single-borrower issuance rose from $19.59 billion in 2023 to a stunning $70.74 billion in 2024, the highest issuance in four years, according to Trepp.
Moreover, the early weeks of 2025 have already seen Irving Company secure a $1.5 billion 10-year refinance for the MetLife Building on 200 Park Avenue and Tishman Speyer snag a $2.85 billion refinancing of The Spiral, a 66-story office tower that opened in 2023 in Manhattan’s Hudson Yards.
Conduit CMBS issuance, which packages properties and geographies together, rose from $19.7 billion in 2023 to $32.9 billion in 2024, per Trepp data.
All told, CMBS issuance totaled $108 billion in 2024, an increase of 168 percent from 2023, a resurgence that came mostly in the form of floating-rate loans as borrowers followed the lead indicated by Federal Reserve Chairman Jerome Powell.
Powell telegraphed at the start of last year that the market would see a decline in benchmark rates in 2024. After holding interest rates steady for nine months, Powell eventually lowered the short-term rate by 175 basis points between September and November.
Brian Pascus can be reached at bpascus@commercialobserver.com
