Greater San Jose Outpaces San Francisco in CMBS Distress

San Francisco and San Jose have been duking it out for decades for the leadership position in tech employment, but now the two cities are in a competition neither wants to win: Bay Area city with the most CMBS loans that are in distress.

According to reports this month in two local business journals, San Francisco currently has a big lead in maturing CMBS debt, in terms of the total amount due by the end of 2024 and the number of loans in distress—but Greater San Jose has jumped out into the lead on the value of its distressed loans.

About $11.4B worth of CMBS loans in San Francisco will come due within the next 18 months, out of which 134 loans with a balance of $1B are showing signs of distress, the San Francisco Business Times reported.

Nearly half of the 136 CMBS loans encompassing $3.4B that are coming due this year in Greater San Jose, which covers Santa Clara and San Benito counties, are in trouble.

According to a report in the Silicon Valley Business Journal, 65 CMBS loans in Greater San Jose are in distress, meaning they’re on watch lists, in special servicing, delinquent, in foreclosure or non-performing—loans with a balance due of $1.5B.

According to the report, San Jose’s distressed loans include debt backed by 38 office properties, eight multifamily assets, three hotels, two industrial sites and 14 other properties.

As in other urban centers, plunging valuations, higher interest rates and sluggish leasing are making it difficult to acquire loan extensions or refinancing packages.

New York City has the most CMBS set to come due by the end of 2024, encompassing almost $40B; Los Angeles is second, with a total about $19B; the top five are rounded out by Miami ($12.6B); San Francisco ($11.4B) and Las Vegas ($10.6B), the Business Times reported.

NYC has 149 distressed CMBS loans encompassing $2.6 billion, Chicago has 79 distressed loans with a total balance of $1.5B. Los Angeles has more than $800M in distressed CMBS, the report said.

Last month, US banking regulators publicly asked lenders to work with credit-worthy borrowers that are facing stress in the CRE market.

The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corp, the National Credit Union Administration and the Office of the Comptroller of the Currency jointly issued an update of the guidance on commercial real estate loan workouts it issued in 2009, immediately after the GFC.

The joint statement said financial institutions should work “prudently and constructively” with good borrowers during times of financial stress.

The new guidance contains short-term loan accommodations that includes an agreement to defer one or more payments, make a partial payment, or provide other assistance or relief to a borrower, Reuters reported.