CMBS Loan Modifications on Pace for Record Year in 2024
CRED iQ’s research team has been fielding requests for deeper analysis on loan modifications during this period of elevated interest rates and levels of delinquency. Loan modifications have surged as borrowers worked with lenders to achieve loan extensions and other alterations to their loan covenants.
Approximately $22 billion in loans were modified in the past 12 months ending May 31. Over $9 billion in loans were modified this year alone through May, placing 2024 squarely on a path to a record-setting year of loan modifications. This compares to a total of $16.8 billion that was modified in 2023.
The notion of “pretend and extend” is totally understandable as loans reach maturity in this challenging rate environment. As of May 31, 2024, the average volume of loan modifications averaged $1.8 billion. April was the busiest month, which saw over $3 billion in CRE loan modifications.
Nearly half of the modification types (46.2 percent) compiled from CRED iQ loan data fell into the maturity date extension category. CRE collateralized loan obligations (CLOs) continued to dominate the loan modifications by deal type with year-to-date (YTD) cumulative balances of $4 billion, representing 44 percent of all modifications in 2024. The single borrower, large loan (SBLL) deal type notched a second-place finish at $3.3 billion (36.4 percent) YTD through May, followed by conduit loans with YTD totals of $1.6 billion (17.4 percent).
The number of modifications in 2023 more than doubled compared to 2022. So far in 2024, the CRE CLO category is on track to easily outpace its 2023 print while all other categories’ run rates are tracking closer to the 2023 benchmarks.
According to CRED iQ’s 2024 CRE maturity outlook, 2024 will see $210 billion in securitized maturities — likely fueling the demand for loan modifications in the second half of 2024.
One of largest loan modifications thus far in 2024 is Phoenix Corporate Tower, a 457,878-square-foot office backed building by a $33.7 million loan (originally $38 million). Due to its upcoming maturity in April 2024, the loan was added to the servicer’s watchlist in January 2024. The loan was modified in April 2024, extending the maturity to July 2025.
The office tower in the Central Corridor submarket of Phoenix was appraised for $42.5 million ($93 a square foot) at underwriting in February 2019. A 0.83 debt service coverage ratio (DSCR) and 78 percent occupancy was reported as of March 2024.
A $63.9 million loan backed by the 412-unit Retreat at Riverside multifamily property in the Atlanta market was also modified in May 2024. The loan was originally scheduled to mature in May 2024, but was extended by two months to July 2024 after being added to the servicer’s watchlist in June 2023. At underwriting in February 2021, the asset was appraised at $81.3 million ($197,330 per unit). The property was 93.4 percent occupied with a 0.78 DSCR as of March 2024.
Mike Haas is the founder and CEO of CRED iQ
