CMBS Delinquency Rate Highest Since End of 2021

CMBS delinquency is at its highest level since the end of 2021, having risen for a fifth consecutive month, according to CRED iQ, with more than $4 billion in aggregate CMBS debt reported as newly delinquent as of June.

For June, the rate came in at 4.4% or a 5% rise from the previous month.

CRED iQ measures the delinquency rate as being equal to the percentage of all the delinquent specially serviced loans and delinquent non-specially serviced loans, based on its sample universe of $600+ billion in CMBS conduit and single asset single-borrower (SASB) loans.

CRED iQ’s special servicing rate increased month-over-month to 6.21%, from 6.01% and has climbed in five out of six months so far in 2023.

In total 6.56% of CMBS loans are specially serviced, delinquent, or a combination of both, according to the report.

Distressed rates generally track slightly higher than special servicing rates as most delinquent loans are also with the special servicer.

At least some of these delinquent loans are deliberate on the part of the borrower, which may be trying to play hardball with a lender or simply sees handing back the keys a more financially viable option. A recent S&P Global Ratings report showed selective defaults have seen a “startling” increase from 25% in 2008 to more than 66% in 2022, though so far, year to date, in 2023 down to just under 50%.

CRED iQ found that office, and to some degree, hotels, are driving many of its negative numbers.

The office delinquency rate increased to 4.60%, up from 3.98% as of May 2023. This month-over-month “surge” of 62 basis points in office delinquency was equal to a 16% increase, the report said.

When eying the trailing 12 months, the delinquency rate for office is nearly 2.5X higher than in July 2022.

“The natural progression of long to intermediate-term rolling leases coupled with ongoing refinancing difficulties at loan maturity has caused the velocity of new delinquencies to accelerate during the first half of 2023,” CRED iQ explained.

The maturity default of a $691 million mortgage secured by a 2.1 million-SF office portfolio in Rosslyn, Va., was a significant culprit in that asset class.

Meanwhile, hotel delinquency for June 2023 measured at 5.34%, up from 4.55% in May.

An untimely default by a 226-key Holiday Inn at 6th Avenue in Manhattan was notable in the report. The loan failed to pay off at maturity, but the borrower requested a two-year extension on the $72.8 million mortgage.

Rounding out delinquency rates for remaining property types, retail delinquency (7.37%) declined from May to June. Multifamily delinquency (1.87%) and industrial delinquency (0.33%) were flat month over month while self-storage delinquency was negligible.