Here’s Where the Biggest Office and Retail Delinquency Rate Increases Are

Trepp recently looked at two CRE sectors — office and retail — and delivered potential bad news in each, as if that is a big surprise to industry professionals.

“Amid the banking crisis, Trepp data shows that, of the $270 billion of bank commercial real estate loans maturing in 2023, about $80 billion (30%) are backed by office properties,” the firm wrote. The clear implication is that if a wave of continued trouble washed over the banking sector, a lot of attention would have to focus on the short-term loans because those are assets that in theory could be sold off or closed out to provide capital to satisfy depositor demands.

Beyond that, Trepp showed an 80 basis-point increase in CMBS office delinquency between December 2022 and February 2023.

Then Trepp pointed to data at Retail Dive, which reported that the retail sector leads corporate defaults at the moment. Through February 28, retail had 30% of a global tally of defaults that were at their highest since 2009. Logistics, labor, and increased supplier costs are all taking a toll and almost half of retailers that S&P rates B- or lower either are facing a negative outlook or credit watch implication. Bankrupt companies largely seek reorganization rather than liquidation and vendors, including landlords, can expect a haircut.

“CMBS retail delinquency rate has declined 22 basis points since December and was 6.75% in February, but retail continues to post the highest delinquency rate of the five main property types,” Trepp added.

The top five states for increased office delinquencies were Pennsylvania (7.6%), North Carolina (6.9%), Mississippi (4.9%), South Carolina (3.9%), and the District of Columbia (3.4%). Some of these are on the list because of specific problem points. In Pennsylvania, “the biggest loan that contributed to the 7.6% increase in total delinquent office loan balance is the $368 million 1500 Market Street loan,” said Trepp. “In North Carolina, the largest loan that contributed to the 6.9% increase in total delinquent office loan balance is the Charlotte Plaza loan, which has $50 million making up about 42% of LNSTR 2016-4 and $70 million making up about 58% of LSTAR 2017-5.”

For retail, the states with the biggest increases in retail delinquencies were Missouri (11.9%), Indiana (4.3%), Virginia (2.0%), New Mexico (1.9%), and Ohio (1.8%).

“The $161 million West County Center loan is the main loan that caused” the Missouri increase, says Trepp. “The top tenant was Nordstrom with 24.87% of the space, but the lease ended at the end of February 2023. The most recently reported financials are from H1 2022 where the loan posted a DSCR (NCF) of 1.57x when occupancy was at 96%. A $110.3 million piece of the loan makes up 68.4% of JPMCC 2012-LC9. A $50.8 million slice represents 31.6% of JPMCC 2013-C10. The former deal is part of CMBX 6.”