Trepp Special Servicing Rate Hits Seven-Year High

The special servicing rate hit its highest mark since May 2013, increasing 44 basis points to 10.48% in September, according to Trepp. In August, the rate was 10.04%.

An increase in retail and lodging special servicing drove the surge in the rate, which sat at 3.10% a year ago. Trepp says both sectors produced their highest servicing rates reported on record. Retail rose from 17.31% in August to 18.32% in September. Lodging came in at 26.04%, after sitting at 24.99% in August. 

Multifamily special servicing rates rose 10 basis points to 2.66%. Office special servicing rates fell eight basis points to 2.85%, while the industrial rate dropped four basis points to 1.17%.

Overall special servicing rates have consistently increased since March when they were 2.83%. The special servicing rate is on the same trendline as it was in 2009 when it reached almost 14%, Trepp expects it to continue to rise going forward.

While the servicing rate rose in September, the CMBS delinquency rate fell to 8.92%. In June, the delinquency rate almost hit an all-time high, coming in at 10.32%. 

“Since then, a number of loans which were marked delinquent have been cured (or reverted to current status),” according to Trepp. “Some of these cures came as a result of forbearances being granted and borrowers being authorized to use reserves to make the loan current. In other cases, relief was canceled or withdrawn by the borrowers and the loans were brought current without relief.”

Forbearances, which switch the loan status from delinquent to current, are the reason for the difference in special servicing rates and delinquency rates. However, if the loans are still stressed, they continue to be specially serviced. “Considering that a forbearance agreement typically provides short-term respite, the special servicing rate seems to be a better representative of the current state of distress in the CMBS universe,” according to Trepp.

The special servicing rate for CMBS 2.0+ notes rose 48 basis points to 9.60% in September. One year ago, it was 1.31%, and six months ago it was 1.62%. The total outstanding balance of these loans currently in special servicing increased by roughly $2.3 billion to $50.47 billion in September.

For legacy CMBS loans, special servicing rates increased 129 basis points to 48.10% in September. One year ago, the US CMBS 1.0 special servicing rate was 47.77%, while six months ago it was 43.26%. The total outstanding balance of these loans reduced to $5.9 billion from $6.1 billion in August.