CMBS Delinquency, Special Servicing Rates Rise Modestly
The commercial mortgage-backed securities (CMBS) market is showing signs of stabilization, with the overall distress rate declining for the third consecutive month in April, according to CRED iQ’s latest analysis. However, modest increases in delinquency and special servicing rates, coupled with a shift toward nonperforming loans past maturity, warrant close attention from commercial real estate professionals.
In our latest analysis, we unpack the trends shaping the CMBS landscape and their implications for investors, lenders and property owners.
CRED iQ’s distress rate, a composite metric capturing loans 30-plus days delinquent (or worse) and those in special servicing, fell by 30 basis points to 10.3 percent in the latest reporting period. This marks the third straight month of declines, signaling potential relief in the CRE sector after a period of heightened volatility. Despite this positive trend, the delinquency rate ticked up slightly from 7.9 percent to 8 percent, while the special servicing rate increased by 20 basis points to 9.9 percent. These upticks highlight the need for vigilance as underlying pressures persist.
The differing numbers also reflect how not all delinquent loans are in special servicing.
Analyzing the payment status of approximately $52.9 billion in distressed CMBS loans reveals critical shifts with $8.3 billion, or 15.7 percent, remaining current, down from $10.3 billion the prior month. Roughly a quarter (25.7 percent) of the distressed CMBS loans were delinquent, holding steady month-over-month.
A majority of the distressed CMBS loans (58.6 percent, or $31 billion) have passed their maturity date. Of these, 16.6 percent are performing (down from 20 percent), while 42 percent are nonperforming (up from 36.3 percent), indicating a notable swing toward nonperformance.
This shift in matured loans underscores the challenges borrowers face in refinancing or resolving loans in a high interest rate environment, a trend that could impact CMBS portfolio performance if it persists.
CRED iQ’s distress rate provides a holistic view of CMBS performance by combining delinquency (30-plus days past due) and special servicing activity, including both performing and nonperforming loans that fail to pay off at maturity. Our analysis focuses on conduit and single-borrower large loan structures, while separately tracking Freddie Mac, Fannie Mae, Ginnie Mae and commercial real estate CLO metrics. This granular approach ensures CRE professionals have a clear, actionable understanding of market dynamics.
The consecutive decline in the distress rate is a promising sign for the CRE sector, potentially reflecting improved borrower performance or successful loan resolutions. However, the uptick in delinquency and special servicing rates suggests ongoing challenges, particularly for properties facing maturity defaults. The increase in nonperforming matured loans highlights the impact of tighter financing conditions and elevated interest rates, which continue to strain borrowers’ ability to refinance.
The declining distress rate may present opportunities for investors to acquire performing assets at favorable terms, but caution is advised given the rise in nonperforming loans. Lenders and servicers should closely monitor matured loans, as the shift toward nonperformance could elevate default risks. Property owners should prioritize proactive engagement with servicers to address potential maturity challenges and explore workout options.
Mike Haas is the founder and CEO of CRED iQ.
